THE DIFFERENCE BETWEEN PROCUREMENT
David Daffner, Vice President
While confusing procurement and purchasing isn’t the biggest faux pas you can make, it’s worth the time to learn the difference between the terms. You’ll sound more knowledgeable in business interactions and be better equipped to navigate large organizations that may have different departments for these activities.
What does purchasing do?
For years, any buying decision was considered “purchasing” because that’s the only term that existed. Purchasing is the process of ordering, receiving and paying for common goods and services. The items may be relatively inexpensive or replenishment of raw materials and parts a business needs to operate. Purchasing can be done by individuals or through groups and organizations for greater buying power due to volume.
Over the last few decades however, there’s been a desire within many industries to take a more strategic approach to the purchasing process. Procurement takes a wider view of purchasing, moving it beyond a tactical transaction. Procurement considers outsourcing as an option and places importance on the best total cost of ownership (TCO), not just quality and quantity of individual items.
How does procurement work?
Procurement is the total process that purchasing now falls under within an organization. It represents a shift from price-per-piece to broader TCO considerations, redefining what best value really means. Procurement is typically a core component of a company as it factors into productivity and financial performance. It even touches on how the public perceives your company and brand. For example, if being environmentally conscious is important, your procurement process should include criteria to ensure you’re selecting vendors who support those values.
Procurement takes into account many different organizational functions, including:
- Requirements identification
- Gap analysis (build-or-buy decision)
- Market research
- Purchase request authorization
- Purchase request approval
- Supplier identification
- Quote or proposal process
- Vendor evaluation
- Contract negotiation
- Payment terms
- Purchase order process
Depending on the size of your organization, scope of the need and financial commitment, your procurement process may differ. What’s clear is that procurement is much more strategic than simply making a purchase with a corporate credit card and saving the receipt.