3/13/2015

Whatisthedifferencebetweenprocurementandpurchasing?|Procurify

Whatisthedifferencebetweenprocurementand
purchasing?

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BYMATT
LIM+ONFEBRUARY
7,2014
PROCUREMENT,PURCHASING

Manypeopleusethetermspurchasingandprocurementinterchangeably,butdespitetheir
apparentsimilaritiestheydohavedifferentmeanings.Thisarticleismeanttoclarifyany
confusionbetweenthesetworelated,yetultimatelydifferent,businesscousins.
Essentially,procurementinvolvestheprocessofselectingvendors,establishingpayment
terms,strategicvetting,selectionandthenegotiationofcontracts.Procurementisconcerned
withacquiring(procuring)allofthegoods,servicesandworkthatisvitaltoanorganization.
Procurementis,essentially,theoverarchingorumbrellatermwithinwhichpurchasingcan
befound.
Theimportanceofstrategy
Becauseprocurementisanuanced,umbrellatermthatincludesseveralcorebusiness
functionsitshouldbeconsideredacorepartofanyorganizationscorporatestrategy.
Asaquickrefresher,ourfriendsatentrepreneurialinsights.comhavepublisheda
particularlylucidexplanationofthefacetsofcorporatestrategy.Thoseaspectsare:
companyidentity,marketplacement,companycapabilitiesandmanagementissues.

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Whatisthedifferencebetweenprocurementandpurchasing?|Procurify

Companyidentity:Whatdoesourcompanywanttodo?Whatdoesourcompany
standfor?Doesourcompanyhaveanyspecificethicalbeliefsthatwilldetermineour
businessmodel?
Marketplacement:Whoareourcustomers?Whatdotheywant?Whatdothey
believein?
Companycapabilities:Whatarethestrengthsandweaknessesofourcompany?Do
ourstrengthssupportthelongtermgoalsofthecompany?Howdowewanttogrow
thecompany?
Managementissues:Doweneedtohire/developtalenttoleadthebusinesstothe
goalweveestablished?Doesthecompanyhavetheresources(equipment,real
estateetc.)neededtosupportthelongtermgoalsofthecompany?

Iparticularlylikethisbreakdownofcorporatestrategybecauseprocurementtoucheseachof
theaforementionedcomponents.Forinstance,procurementandcompanyidentityare
intertwined.Ifyourbusinessisbuilding(orhasbuilt)itsidentityaroundanenvironmentally
consciousethic,thanyourprocurementstrategymustreflectthatdecisionandplacea
significantfocusonensuringitssuppliersdonotengageinenvironmentallydangerous
practicesoremployunderageworkers.
Ifyourcompanyhasbrandeditself,thenyourmarketplacement(whatyourcustomerswant)
willreflectthatbranding.Customersare,withoutadoubt,attractedtothephilosophiesand
practicesabusinessuses.
Yourcompanyscapabilities(strengthsandweaknesses)andmanagementissues(inhouse
talent),then,willalsoreflectthatbranding.Youmusthavethepeopleinplace(withthe
requisiteexpertise)toputintoactionthebeliefs/philosophiesyouwantyourbusinesstobe
governedby.
Stepsintheprocurementprocess
Aligningyourprocurementfunctionwithyourcorporatestrategyisonlyonepartofthe
ultimategoalofprocurement.Goodsandservices,ofcourse,alsoneedtobebought.
Theprocessofpurchasingthosegoodandservicesisknownastheprocuretopaycycle.
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Theentireprocuretopaycyclecanbeaninvolvedprocesswithnumeroussteps.Foryour
reference,theentireprocuretopaycycleislistedbelow:

IdentificationofRequirement
AuthorizationofPurchaseRequest
FinalApprovalofPurchaseRequest
Procurement
IdentificationofSuppliers
Inquiries
ReceiptoftheQuotation
Negotiation
SelectionoftheVendor
PurchaseOrderAcknowledgement
AdvanceShipmentNotice
GoodsReceipt
InvoiceRecording
3WayMatch
PaymenttoSupplier
Adetailedbreakdownofeachcomponentoftheprocuretopaycyclecanbe
foundhere.

Althoughthislistisexhaustive,thenatureofyourspecificbusinesswilldeterminetheextent
oftheprocuretopaycycleyouemploy.Forexample,ifyourworkinalarge,multinational
corporation,youmayhavetoundergoamoreinvolvedIdentificationofRequirement
phase.Ontheotherhand,ifyouworkinasmallfirm,thatstagemaybequickandsimple.
Understandthescopeofyourbusinessandtailorasneeded.
Usingpurchaseorders(especiallythosegeneratedbyaneprocurementsoftwaresolution)
iscritical,regardlessofthesizeofyourorganization.Dontsimplyuseyourcreditscard(s)
andsavethereceipts.Dontrelyonemails.
Thepurchasingprocess
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Purchasing,then,isasubsetofprocurement.Andasweveoutlined,purchasinggenerally
referstobuyinggoodsorservices.Purchasingoftenincludesreceivingandpaymentaswell
(thesearebothcriticalaspectsofpurchasing,albeitfoundlaterinthecycle).
Withintheoverarchingprocuretopaycycle,thestepsspecificallyrelatedtopurchasingare:

PurchaseOrderAcknowledgement
AdvanceShipmentNotice
GoodsReceipt
InvoiceRecording
3WayMatch
PaymenttoSupplier

Unliketheentireprocuretopaycycle,thestepsexplicitlyrelatedtopurchasingshouldnot
betailoredtosuitthesizeandscopeofeachindividualbusiness.Thesearefundamental
stepsofgoodpurchasingandshouldbeemployedroutinely.
Conclusion
Becausepurchasingisaprocesswithintheoverarchingprocurementprocess,both
procurementandpurchasingareoftenusedinterchangeably.Inthebusinessworld,the
practiceofusingsimilarterminologyineitherconversationorprintedmaterialsisroutine,
althoughitcansometimesbealittleconfusing.
Torecap:Procurementdealswiththesourcingactivities,negotiationandstrategicselection
ofgoodsandservicesthatareusuallyofimportancetoanorganization.Purchasing,
however,istheprocessofhowgoodsandservicesareordered.Purchasingcanusuallybe
describedasthetransactionalexplicitfunctionofprocurementforgoodsorservices.

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