What is The Key Difference Between Procurement and Purchase

difference between procurement and purchase
blog dateAug 01, 2022 | 7 min read | views 117

You may have seen people use procurement and purchase interchangeably. As both terms are used frequently in organizations while buying goods and services, many often mistake these terms. Some are very ignorant about these terms and don't even care what terms they use during formal conversation.

If you dive into the seas of technical terms and organizational language, you will realize that the terms are different and must be used appropriately for official conversations. Why does the distinction matter? Because it lets the management execute these functions and increase the value they offer to the company. And if there's a mixup or misunderstanding, it will affect the entire team and process.

Several organizations use procurement software tools such as TYASuite for the automation of these processes. And it helps the organization to function efficiently.

Now, how do you differentiate procurement vs purchase these terms?

To differentiate these terms, you need to understand the definition of procurement and purchase these terms. Then, you can understand how and where the difference arises.

Before the definitions, let’s take a quick look at the process involved in both. The flow chart of the procurement vs purchase process will make it easier for you to understand the differences and similarities.

Procurement process

1. Identify needs

2. Research and source supplier

3. Create supplier list

4. Issue RFQ

5. Evaluate supplier quotes

6. Negotiate contracts

7. Receive product/service

8. Performance check

9. Analyze KPIs and margins

10. Builder supplier relationship

Purchase process

1. Receive purchase requisition

2. Evaluate receive RFQ

3. Create purchase orders

4. Receive product/service

5. QA of product/service

6. Process payment to supplier

Definitions

Procurement

In short, you can define procurement as, "a series of processes that are executed to acquire goods and services for a firm."

Procurement is actually an umbrella term with a subset of processes that help fulfill the requirements of goods and services of a firm. Each firm has a unique procurement process, but, a common framework of the method can be listed below:

challenges in procurement process

  • Recognizing business requirements and raise PR
  • Identifying, analyzing, and selecting relevant suppliers
  • Negotiating contracts with chosen suppliers
  • Create PO
  • Quality checking of goods
  • Invoicing and starting off payments to the suppliers

Purchasing

The term refers to the set of procedures related to the execution of transactions between a firm and its suppliers to buy goods and services.

Purchasing is a subset of procurement, and it begins and ends with placing and receiving an order.

These definitions are enough to understand the meaning and the correct usage of the terms.

Now, let's look at the key differences between procurement and purchase.

Strategic vs tactical

If you read the definitions carefully, you will understand that procurement is a strategic function, whereas purchasing is tactical. Purchasing starts and ends with the pacing of the order and receiving (it), whereas, procurement begins when there is a requirement of gods or services. Procurement involves aspects such as finding the right supplier, analyzing the pricing, supply chain, etc.

Goals or targets

Purchase is totally focused on the cost of the orders, and procurement focuses on the creation of value and TCO (Total Cost of Ownership). Purchasing is concerned with the minimization of cost and procurement aims to mitigate risk, cost savings, relationship with suppliers, etc.

Supplier relationship

Purchasing process doesn't have anything to do with the supplier relationship. However, procurement places high importance on building long-term and cooperative relationships with the main suppliers. The procurement process considers the suppliers as strategic partners.

Evaluation of risk and mitigation

Mitigation of risk is not needed in the purchasing process. The risks are of various kinds such as operational risk, data security risk, financial risk, etc. Only the procurement process is concerned with identifying these risks and analyzing which ones impact the business and stakeholders.

The next important question is when to use these terms or when do companies use procurement vs purchase processes?

There are various factors that decide the usage of these methods of acquiring goods and services, they are:

Time

If the requirement is immediate, firms purchase the goods and services. Procurement usually takes longer to happen as it involves steps like a request for proposal creation, supplier selection, and negotiation of the contract.

Quantity 

Procurement is the best form of acquiring goods and services in huge quantities for a longer period.

Customization

If the firm needs to customize some products or goods, procurement is the best route as the firm can work with vendors to make sure they understand your requirements

Price 

Purchase of services is cheaper than procurement services. It also depends on the conditions

Relationship

Purchasing is simple and vendors like it, because nobody wants to go along with the long process of procurement.

Now that the difference between procurement and purchase is clear, let's look at how firms automate both processes.

As mentioned earlier, procurement is a process of searching and agreeing to the terms of purchase. It involves identifying potential suppliers, negotiating contracts, and selecting the supplier that provides the best value for money. And purchasing is the process of direct buying of goods and services.

For making the process automated, firms use eProcurement tools, such as TYASuite. You can check the Request for Quotation, issues in orders, and track deliveries. eProcurement can help streamline and automate your procurement and purchasing process.

Conclusion

In short, people look at procurement and purchase as interchangeable terms, and the terms comes into the picture when there's a requirement for goods and services. Proper understanding of these terms is necessary to do business, and every employee of the organization must understand the difference between these terms.

A thorough understanding of these terms will help one converse with your colleagues, clients, customers, business partners, and recruiters. And a lack of knowledge about procurement vs purchase will lead to complications and related issues.

TYASuite

TYASuite

A revolutionary ERP software meticulously crafted to help industries grow without burning a hole in their pockets. TYASuite is a one-stop solution for your company which can be implemented just within a few days.
blog comment New Comment
blog comments Comments