Procurement vs. Purchasing
Procurement is an umbrella term that covers several core business functions including acquiring goods and services at the best total cost while factoring in standards such as quality, quantity, location and timing. Procurement is designed to meet the needs of the purchaser and uses eight steps to help obtain raw materials and production goods (known as direct procurement) and maintenance, repair and operating supplies (known as indirect procurement.)
Gathering information, contacting suppliers, vetting the suppliers, and negotiation are grouped under the term Request for Proposal (RFP). These are the first four steps in acquiring goods and services. The following steps in the procurement process; ordering, receiving and distribution are the actual acquiring of goods and services. The final step in procurement is vendor management. This includes the maintenance of the agreement and disposal or renewal of the agreement.
Purchasing is a subcategory of procurement and generally refers to the method of acquiring goods and services. The term often covers receiving and payment as well. Several key steps in purchasing include acknowledgment of purchase order, advance shipment notice, receipt of goods or service, invoicing and payment to supplier.
For some, the argument between procurement and purchasing comes down to semantics but there are important differences that should be noted. Procurement seeks to find new vendors and build relationships while purchasing tends to work within a set vendor base. The success of procurement is measured on risk reduction and long-term cost savings while purchasing focuses on having the cheapest goods delivered at the right time. While purchasing is seen as transactional, procurement utilizes strategy and the art of negotiation.
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