Purchasing Vs Procurement: What's the Difference?
Business language and definitions often appear to be not much more than questions of semantics. Some terms are used almost interchangeably and that is not exactly accurate. There are very specific phrases and titles in the business world and it is important to understand them. Such knowledge helps avoid confusion. This is the case with purchasing as opposed to procurement. There is a difference.
Procurement Is The Art Of Negotiation.
It can be thought of as a search mechanism of the company. Procurement works to find all that is necessary for a manufacturing company to produce the products. This means finding the raw materials, seeking out what services are going to be needed, and what outside contractors will provide necessary insights or labor. There is a lot of negotiation that is involved in the procurement process. A procurement specialist is going to be negotiating with vendors, as well as setting up terms for the purchase of needed goods and services. Negotiation of contracts is all part of the description.
On the other hand, Purchasing
It is easy to see why there is a confusion between the two terms. Purchasing happens to be a part of the procurement process. It is an activity that commits a certain amount of budget dollars for the acquisition of what is needed for the business to operate. Purchasing is very straightforward and requires the authorization of the proper authority to be done. The work of finding the right vendor has already been done before purchasing request has been made.
The Substantive Difference.
The best way to provide a substantive difference can center on quality. Procurement is concerned with what items are needed. It has a functional responsibility to look at the quality of goods or services, as they pertain to production and corporate objectives. The idea is to source what is needed at a price that is affordable. There is a bit more exchange between a procurement officer and a vendor. There is also included the negotiation of a contract or agreement. Purchasing is going to rely on the judgment of what procurement has done. There isn’t really as much concern about quality because procurement has handled that responsibility.
Purchasing is concerned with budget and cost control. Purchasing department employees have a responsibility to make sure that the transactions are kept in the identified budgets. Procurement may be concerned about the quality of items over a given period of time, and what the depreciation might be. It is something that purchasing itself usually does not have to worry about.
The Collaboration of Both.
Given the differences, these two business functions are not separate entities. It is not like the relationship between accounting and customer service, because both certainly rely on each other. Purchasing has to alert procurement to the budgetary constraints that have to be considered. The quality of the goods and services will be important in that the cost is justified if the value is high, and the lifespan favorably long. The communication between the two departments can lead to a better overall acquisition policy. That is something that executive management should encourage.
Procurement and purchasing working together will guarantee that quality ingredients will be acquired at reasonable costs. The same is true of services to be rendered to the company from an outside vendor, and that the final profit is going to be greater than the price. It is better to say that this is not a situation of quality versus cost. Rather, it is an explanation of how two activities which may have different daily responsibilities come together in the final securing of whatever is needed for a company to effectively reach its stated objectives.