3/13/2015 Whatisthedifferencebetweenprocurementandpurchasing?|Procurify

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PROCUREMENT,PURCHASING

2BYMATTLIM+ONFEBRUARY7,2014

Whatisthedifferencebetweenprocurementandpurchasing?

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.

http://www.entrepreneurial-insights.com/establishing-winning-corporate-strategy/http://blog.procurify.com/category/procurement/https://plus.google.com/+MattLim13http://blog.procurify.com/2014/02/07/what-is-the-difference-between-procurement-and-purchasing/#commentshttp://blog.procurify.com/2014/02/07/what-is-the-difference-between-procurement-and-purchasing/#http://blog.procurify.com/author/matt/http://blog.procurify.com/category/purchasing-management/

3/13/2015 Whatisthedifferencebetweenprocurementandpurchasing?|Procurify

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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

http://blog.procurify.com/2013/04/03/the-complete-procure-to-pay-cycle/

3/13/2015 Whatisthedifferencebetweenprocurementandpurchasing?|Procurify

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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.