Procurement vs. Purchasing: Understanding the Difference in Supply Chain Management

Procurement and purchasing are often misunderstood to mean the same thing in the procurement process. Though often used interchangeably, these words represent two completely different meanings. 

Procurement is an essential function focused on procuring goods or services required for the company’s business operations. Purchasing is a part of the procurement function, which involves getting goods or services from preselected suppliers. 

What is procurement? 

The procurement function involves the entire process of obtaining goods or services for the company from a third-party vendor. The following steps are part of the procurement process: 

• Conducting market research
• Selecting suitable suppliers
• Negotiating and managing vendor contracts
• Identifying purchase needs
• Requesting purchase requisitions
• Sending purchase orders to vendors
• Receiving and checking goods purchased
• Maintaining good vendor relationships
• Monitoring vendor performance

The procurement department of the company generally handles this. The entire procurement process can be divided into two parts: sourcing and purchasing. 

The sourcing part of the procurement process involves selecting vendors and monitoring their performance to ensure they are the best fit for your company. Sourcing is done before goods or services are purchased from the vendors. 

What is purchasing? 

Purchasing is the part of procurement that focuses on buying goods and services for the company. The following steps are involved in purchasing:

• Reviewing purchase requisitions
• Checking quotes from vendors
• Sending purchase orders
• Inspecting goods quality 
• Ensuring payments are made to vendors

The purchasing department relies on the vendors sourced by the sourcing team for making the purchase. They select vendors based on the type and quantity of goods required as well as delivery dates. 

Difference between procurement and purchasing

Procurement and purchasing are highly interlinked terms. Here are some of the key differences between procurement and purchasing. 

Objective

Procurement is a major strategic function of a company that involves vetting suppliers and ensuring they’re performing well. The procurement process involves monitoring supplier performance and strategically selecting new vendors whenever necessary. 

Purchasing is a transactional process within the company. It involves ensuring goods are bought and delivered on time and ensuring that the quality and quantity of goods or services are at par with the purchase request. 

Stakeholders

The procurement process is handled by the procurement department in the company. For large-size companies, purchasing is handled by the purchasing department, whereas smaller companies require the procurement department to manage purchasing as well. 

Focus

The procurement function ensures the efficiency of the procurement process with long-term cost savings and smooth functionality in mind. The purchasing function focuses on fulfilling short-term purchases required by the company.

Impact

The procurement function impacts the financial performance of the organization by strategizing cost-effective procurement of goods and services. The purchasing function focuses on the operational efficiency of the organization by ensuring goods and services are delivered on time and managing inventory. It takes care of the supply chain of the company. 

Importance of procurement and purchasing

Both procurement and purchasing are essential functions of a company. 

The procurement function provides various benefits to the organization, such as: 

• Effective negotiation: Negotiating fruitful deals with vendors helps manage long-term costs for the company. This greatly benefits the company’s financial health. 
• Eliminate risks: Verifying vendor details and carefully selecting the vendors protects the company from vendor fraud and potential legal issues. 

The importance of the purchasing function can be as follows: 

• Supply chain management: Purchasing department is highly responsible for smooth operations and ensuring supply chain functions remain undisrupted. This involves purchasing goods from the correct suppliers based on geographical location and scale. 
• Inventory management: The purchasing department is also vital in inventory management and control, ensuring demand is always met and avoiding overproduction. 

How AP automation can benefit procurement and purchasing departments

AP automation software like ClearTech helps the procurement and purchasing department manage vendor documents like contracts, inspection slips and purchase orders on a single platform, removing the hassle of searching for documents. Interactive spend and savings dashboards also provide procurement teams with cost-saving opportunities and better vendor alternatives, aiding in cost control and spend management. Most AP automation vendors also allow you to approve or reject invoices in just a single click, with complete context in every email, saving time and ensuring timely payments. 

Conclusion

Procurement and purchasing are two different processes in business operations but are often misinterpreted. The procurement function covers every aspect of procuring goods, from market selection and vendor research to vendor performance and relationship management. The purchasing function involves buying goods and services from suppliers of the company. This includes obtaining purchase requisitions, reviewing quotes, sending purchase orders, and receiving and inspecting the goods. Procurement is a strategic function of the company carried out by the procurement department, while purchasing is an operational task ensuring no disruptions occur in the supply chain. The procurement department manages procurement functions and purchasing functions for small-scale companies. In larger organizations, a purchasing department manages purchasing.