Difference between Purchase and Procurement.| Many think that the words purchasing and procurement are interchangeable and use them synonymously, but the fact is that procurement is a broad term that includes purchasing. Procurement involves sourcing and purchasing goods, services, and work from external sources, so as to meet the needs of the organization and operate profitably and efficiently.
Procurement involves all types of acquisitions including leasing, leasing and making contracts to arrange for goods or services. In contrast, Purchasing only concerns the act of purchasing and includes paying for the goods/services purchased or received on credit. In this article, we will discuss the difference between procurement and purchasing.
Definition of Purchase
Purchasing can be defined as a routine activity carried out by a company that involves the purchase of goods and services at a certain price. When a company buys goods, there is a change of ownership and location, i.e. the goods are transferred to the buyer by the seller with the payment of an agreed amount.
Purchases can be for personal consumption or for commercial use. Most business entities purchase goods to ensure an uninterrupted supply of materials so that the production process can run efficiently. Every organization has certain standards for purchasing goods such as quality, quantity, price, availability, and so on.
It aims to provide the required goods, components or materials in the required quantity and quality, on time and at a reasonable cost. In addition, it also intends to minimize the company’s working capital locked in inventory and strengthen its position in the market.
Purchase process
Purchasing Activities
- Get a purchase requisition
- Invite proposals and evaluate bids
- Sending a purchase order
- Early delivery notice
- Receive and check goods
- Recording invoices
- Perform three-way matching
- Payment to supplier
Definition of Procurement
Procurement refers to the process of streamlining the sources of raw materials and services so as to enable the organization to operate efficiently. It aims to obtain raw materials and supplies especially for business purposes on a large scale at the best prices taking into account various factors such as quality, quantity, location and delivery time.
This process involves a number of activities aimed at obtaining the necessary goods such as raw materials, office equipment, supplies, tools, technical equipment, spare parts, services and work from external sources, etc. Procurement aims to save costs and build relationships with suppliers.
Procurement is all about information processing, i.e. conveying information to suppliers about what consumers want and also to customers about what suppliers have. It acts as an important link between buyers and sellers, ensuring that the right materials are procured from the right vendors, in the right quantities and locations and at the right time.
Procurement process
Procurement Activities
- Need identification
- Authorize purchase requisitions and approve them.
- Invite quotations from suppliers.
- Accept quotation and negotiation terms
- Identifying and Selecting suppliers
- Negotiate
- Agreed terms
- Prepare purchase orders
- Goods receipt and inspection
- Perform three-way matching
- Shipping management
- Receive invoice
- Make a payment
Difference Between Purchasing and Procurement
- Purchasing implies that an organizational function that involves the purchase of goods and services to meet the company’s needs in carrying out the production process. On the other hand, procurement is nothing but the procurement or arrangement of goods and services which includes asking for quotes, negotiating terms, checking the quality of goods purchased and making payments, etc. To meet the needs of the company.
- Purchasing is a tactical process, whereas procurement is a strategic one.
- Purchasing is a reactive process, in the sense that first the requirements of the goods are recognized and then the supplier is invited to make a bid. While the procurement process, first of all, the market is surveyed to find potential suppliers and a list of those selected suppliers, and then the internal needs are identified after the quotation is requested.
- Purchasing is a direct process that involves purchasing a commodity for a price. Procurement involves all the steps leading to the acquisition of a commodity, whether they are taken before, during or after purchase.
- While purchasing emphasizes on making transactions efficient and places less emphasis on developing relationships with suppliers/vendors, procurement is quite the opposite. Procurement focuses on developing long and strong relationships with suppliers. So, we can say that purchasing has a transactional focus, but procurement has a relational focus.
- Purchases are related to the purchase of goods or other goods at a certain price. In contrast, procurement is associated with acquiring goods or services, machinery, supplies, equipment either on a lease or contract basis.
- In purchasing, more weight is given to the price of the goods than its value, however, in the case of procurement, the value of the goods is given more importance than the price.
- Purchasing activities are generally adopted in a wholesale environment, i.e. where goods will be purchased in wholesale for the purpose of resale. In contrast, procurement is adopted in a production environment where raw materials will be purchased to carry out the production process.
- Purchasing involves activities such as placing orders, expediting and making payments. In contrast, procurement involves procurement and purchasing activities, such as identification of needs, procurement, payment, closing of contracts, and record keeping.
Conclusion
Procurement includes everything from expediting to supplier quality, from transportation to making payments. But, this is not the case with purchases because it includes the purchase of goods from external sources for money.
