Have you ever wanted to buy something only to be told by purchasing to talk to the procurement department? Have you had a request get ‘stuck’ someplace without visibility to what is happening?
This is a common problem in large organizations, and the confusion is only compounded when terms like procurement and purchasing are easily interchanged, as are words such as vendor and supplier. While they are both in the same wheelhouse, each term has its own definition and function. Understanding the difference between Purchasing and Procurement can help you navigate an oft-complex corporate landscape:
Procurement
Procurement is an entity within an organization. It is a strategic function that works to improve the organization’s profitability while delivering goods and services that meet organizational requirements.
There are a wide range of activities involved that support an organization’s buying needs such as:
- Procurement and Sourcing Strategy
- Category Management
- Vendor Management
- Performance Management
- Sourcing
- Contracting
- Purchasing
- Compliance and Governance
- Payment Approval
Procurement carries significant fiduciary responsibility, ensuring that funds are spent in alignment with organizational strategies and requirements. Procurement does not balance the checkbook (that is left to the Accounting department), but procurement does have to have processes, policies, and procedures in place to ensure that money is spent wisely. In addition to spending, it is also responsible for savings and at times even cost cutting; key activities that impact the financial bottom line. Effective Procurement is one of the most beneficial tactics for driving a company’s profitability and increasing shareholder value.
Purchasing
Purchasing is a subset of procurement. Purchasing generally refers to buying goods or services and often includes receiving and payment. The overall Procurement process can be viewed as culminating in purchasing, where the goods or services are bought, and purchasing as a function commonly includes receiving the goods or services and rendering payment.
As one of the most visible and high volume Procurement activities, the terms Purchasing and Procurement are often used interchangeably. Next time you seek to purchase something, bear in mind that there is a Procurement lifecycle that enable your purchase and helps your organization operate smoothly.
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