Procurement and purchasing are so often used interchangeably, that asking what the difference between these two processes is might sound like a trick question. But with a clear understanding of these two topics, the truth about procurement vs. purchasing is much more straightforward.
In this post, we’ll break down why these two processes are often referred to interchangeably, the key differences between procurement vs. purchasing, and how the two processes work together.
Plus, we’ll dive into how no-code automation software can help managers handle tasks like developing and executing long-term strategies, spend management, cost-saving control, risk mitigation, and additional procurement and purchasing activities that support key business objectives.
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What is procurement?
Procurement is the process of acquiring company goods and/or services required to meet business objectives. Procurement is a strategic process, and the main goal is to source the best product at the best price through negotiations and competitive bidding.
Procurement’s strategic role also involves solving for something known as the 5 Rights: obtaining the right quantity of products from the right place, at the right price, with the right quality, and delivered at the right time. By leveraging supplier relations, contract management, and category management, procurement teams work toward obtaining goods and services for the lowest total cost of ownership.
Some common procurement end-to-end activities include identifying, contacting, and choosing the best suppliers, as well as:
- Maintain a running list of approved suppliers.
- Negotiate contracts with suppliers.
- Identify cost-saving opportunities by analyzing margins and business objectives and KPIs.
- Build and manage new and existing supplier relationships.
- Request and evaluate quotes from suppliers.
- Ensure the execution of procurement strategies to ensure consistent and high-quality value delivery.
- Develop sourcing and procurement activities that support key business objectives.
- Analyze market and delivery trends so as to develop procurement technologies and processes that support those trends.
- Develop and execute a long-term strategy to facilitate improvements for procurement.
- Spend management and cost-saving control.
Because of the nature of procurement, the process requires extensive supplier research, analysis, and communication. While there is technically a start and an endpoint in this cycle, it’s much more involved and drawn out.
Procurement process example
The procurement cycle begins with assessing and identifying internal business needs. Then, the procurement team will conduct a market analysis and do supplier research to determine sourcing and approved suppliers that adequately meets the 5 Rights. Within the procurement cycle is also supplier relationship management which reduces risk and adds value across the supply chain.
What is purchasing?
Purchasing is the structured process of buying or acquiring goods and/or services. The purchasing process is a transactional process that includes fulfilling or arranging payment, as well as approving the purchase of day-to-day transactions, like office supplies, and purchases required to meet business objectives.
Common purchasing process activities include:
- Manage purchase requisitions and create purchase orders.
- Approve purchase requests.
- Identify cost-saving opportunities by analyzing margins and business objectives and KPIs.
- Quotation, negotiation, vendor evaluation.
Unlike the procurement process, the purchasing process is straightforward and typically goes from Point A to Point B without too much back and forth. While it operates as its own process, the purchase process can also be considered as a subprocess, or a workflow, within the larger procurement process since acquired goods and services need to flow through this process.
Purchasing process example
The purchasing process begins with a purchase requisition. Once the request is received, the purchasing team will request supplier information and request a quote if the information provided aligns with the criteria provided to suppliers. Following these steps, negotiations will be had, approvals will be shared, and a purchase order will be generated. Once a receipt is filed and the supplier invoice is processed, the accounts payable team will handle making the final payment.
The difference between procurement vs. purchasing
It’s easy to understand how procurement and purchasing can be confused and used interchangeably since both have to do with obtaining goods and services. But the simple answer to procurement vs. purchasing can be summed up to three points:
- Purchasing focuses on the transactional functions of buying goods and services, including purchase order, payment to suppliers, and receiving goods. The purchasing process centers around the cost of purchases and minimizing costs.
- Procurement focuses on the strategic activities related to acquiring goods, products, or services, including sourcing, contract management, and managing supplier relationships. The procurement process centers around value creation and maximizing contractual value.
- Procurement is a broad concept and the purchasing process is a part of procurement; so in order to complete the larger procurement process, the purchasing process will need to be completed as well.
Below are some additional key differences between procurement vs. purchasing:
| Procurement | Purchasing |
|---|---|
| Broad concept or process that includes the purchasing process | Subprocess within the broader procurement process |
| Strategic activities focused on business goals, like maximizing contractual value and risk evaluation and mitigation | Transactional functions focused on supporting procurement, like minimizing the cost of goods and services |
| Involved and proactive process activities; requires extensive supplier research, market analysis, bidding, and negotiating favorable terms and pricing that can last weeks or months | Straightforward and reactive process; single purchase cycle is common to fulfill immediate needs in the most efficient and cost-effective manner |
| Prioritizes relationships with suppliers and getting the best long-term value | Prioritizes speed, efficiency, cost savings, and getting the best price |
Solve procurement challenges with a no-code automation solution
In order to function properly and align with business objectives, the procurement process has essential needs. For example, a layer of end-to-end visibility and communication in order to streamline and connect disparate systems.
However, there are challenges that can affect the procurement process, such as:
- Communication silos.
- Manual, repetitive work that introduces human errors and risk.
- Gaps between core systems and existing tech stack.
- A lack of visibility and transparency.
- Difficulty tracking and centralizing documents, contracts, and invoices.
Because procurement and purchasing are connected, an issue that affects the procurement process can trickle down and ultimately affect the purchasing process — making for financial and operational inefficiencies. But with a no-code automation solution, you can bridge the gaps in your existing processes without exhausting existing resources. Automation empowers procurement teams to:
- Simplify the tech stack rather than adding more complexity with the help of automation, process connections, and ERPs, e-procurement, e-sourcing, and e-signature integrations.
- Improve accuracy by reducing excessive manual work, human errors, redundancies, and rework between emails, spreadsheets, and systems.
- Gain control of procurement visibility and traceability by centralizing activities scattered across various systems and forms of communication.
- Streamline purchasing faster by having an easy-to-use and quickly deployed system that centralizes all the activities and requests’ status.
- Achieve better cost-efficiency by enabling approvers and requesters to interact with requests from a single platform.
A no-code visual interface lets teams remain agile without introducing chaos into existing processes or adding to the IT backlog. With a no-code automation solution like Pipefy, gain control, visibility, and transparency of your procurement and purchasing process, increase productivity, and cost reduction by reducing process inefficiencies.
