Understanding the difference of procurement vs. purchasing is important because they are often mixed or used interchangeably. They both are very important aspects of the supply chain management process.
Not knowing the differences can make businesses overlook important factors that affect their profits. In this guide, we will see procurement vs. purchasing definitions and look deeper into both topics.
What Is Procurement?
Procurement is the process of finding and buying every item a company needs from outside sources to function properly, like other companies or third-party suppliers. A good procurement plan can help get better deals on prices and make sure the items are of good quality and are delivered on time.
Steps Involved in the Procurement Process
The procurement process is handled by the procurement manager, and he performs these ten steps.
1. Identify What the Organization Needs
First, figure out what products and services your organization requires to function properly and smoothly.
2. Take Finance and Purchase Approvals
Ask the finance team to review your shopping requests. They need to make sure the things you want to buy are needed and fit within the company budget.
3. Pick the Right Sellers
Choose a few sellers you might want to buy from. Look at things like prices, quality, if they have what you need, how you can pay, and how well they do business.
4. Bargain on Price and Terms
When you find a seller you like, talk about the price and terms. They might give you discounts for buying in bulk. Make sure both parties are satisfied with the final offer.
5. Make a Purchase Order
Make a purchase order that shows what you want to buy. Write down how much it costs, how many items you need, etc. This is the most important step.
6. Wait for the Order to Arrive
After you've ordered, you just have to wait for the things to be delivered.
7. Review Your Order
When the items arrive, check if the order is correct and whether they are in good condition or not. You can add the received order to the system if everything's right.
8. Three-Way Matching
Take the order copy, the receipt, and the bill from the seller. Look at all three to make sure they're the same.
9. Accept the Invoice and Pay
If everything looks good and the papers match, you can accept the invoice and pay the seller.
10. Keep Good Records
Make sure you keep all the papers (the shopping list, receipt, and bill) safe. You might need them later to remember what you bought.
Define Purchasing
Purchasing is the process of getting specific things/items a company needs. It includes making orders, making sure things arrive on time, paying for them, etc.
Steps Involved in the Purchasing Process
Purchasing is a small aspect of the procurement process. These steps are a bit different from the ones we talked about in procurement, where you might need to adjust things based on who you're dealing with.
Here are the six steps involved in the purchasing process:
1. Confirm Your Order
Let the sender know you got the purchase order, and everything seems right for getting the items.
2. Send a Shipping Note
Send a note with all the details about pending orders or deliveries. This note must contain important information about the shipment.
3. Keep the Receipt
After you get what you ordered, put the receipt in the right place with your accounting information.
4. Record the Invoice
Record and write down the details of the bill for future reference.
5. Three-Way Matching
Take the order copy, the receipt, and the bill from the seller. Look at all three to make sure they're the same.
**6. Pay the Seller **
If everything looks good, pay the seller the price you both agreed on.
Procurement vs. Purchasing: Similarities and Differences
Here is a table showing the similarities and differences between procurement vs. purchasing:
Similarities:
| Similarities | Procurement and Purchasing |
|---|---|
| Purchasing things | Both involve getting the items needed by the company |
| For the company | Both help simplify the organization's workflow |
| Need for planning | Both require some planning |
| Supplier dealings | Both involve working with sellers |
Differences
| Aspect | Procurement | Purchasing |
|---|---|---|
| Definition | Getting everything a company needs | Getting specific things/items for the company |
| Relation | Bigger process that includes purchasing | Part of the procurement process |
| Customization | Might need to adjust based on the vendor | Steps stay the same for each vendor |
| Steps | Includes planning, sourcing, negotiation | Involves order confirmation, payment, etc. |
| Scope | Covers the entire supply chain and strategy | Deals with instant transactions |
| Complexity | Often more complex due to the strategy involved | Generally simpler since it's a single task |
What Is E-Procurement?
E-procurement is electronic procurement, a digital approach to managing an organization's purchasing and procurement processes within an organization. It involves using technology, particularly the internet and software, to simplify and automate various tasks related to sourcing, ordering, and managing the purchase of goods and services.
The Importance of an E-Procurement Solution
Using technology to handle tasks in procurement and improving your procure-to-payment process through procurement software can greatly improve your company's financial performance.
TranZact's procurement and expense management solution can improve how your team manages all buying and purchasing activities. Here is what you can do with e-procurement software:
- Everyone on your team can request what they need.
- It helps guide the steps for buying things.
- You can make, approve, and keep orders in one place.
- Everyone can see a list of good vendors online.
- Easy and quick approvals.
- You can order and get things from your mobile.
- You can track how well vendors perform.
- It makes sure the order, receipt, and bill match.
- You can move important information to your money records.
Is E-Procurement the Solution for Your Business?
E-procurement can offer multiple benefits in productivity, cost savings, and accuracy. However, assessing your organization's specific needs, goals, and challenges is important to decide whether using an e-procurement system is right for your business.
If you are a small enterprise with low purchasing needs, investing in an e-procurement solution is not necessary because the work can be done manually, but if you are a big enterprise with a high buying need, this software might be a great fit for you.
Get the Right Procurement System for Your Business With TranZact
Finding a perfect procurement system for your business is not easy; you have to take care of everything involved in the supply chain management process. TranZact helps you with its inventory and production management software that helps make your buying and managing processes easier.
FAQs on Procurement vs. Purchasing
1. What is the difference between a purchasing manager vs. procurement manager?
The purchasing manager primarily handles the practical process of buying goods and services, including confirming the purchase order, managing inventory, etc. But, a procurement manager takes a strategic approach, focusing on overall supply chain management, supplier relationships, risk assessment, etc., before buying any item.
2. What is e-procurement vs. e-purchasing?
E-procurement refers to automating the entire procurement process, such as sourcing, selecting suppliers, creating purchase orders, receiving goods, and making payments. But, e-purchasing is a narrower term that specifically refers to the online or electronic aspect of the buying process.
3. How do procurement and purchasing impact a company's bottom line?
Effective procurement and purchasing impact a company's bottom line positively. It can lead to
- cost savings
- better resource management
- improved overall efficiency, etc.
4. Can one person handle both procurement and purchasing roles?
Depending on the size of the business, one person might handle both, but larger companies often separate the roles for better supply chain management.
5. Is procurement only about goods, or does it include services too?
Procurement covers both goods and services. It's about getting everything the company needs to function properly.
6. How does procurement and purchasing impact supply chain management?
Both purchasing and procurement play an important role in supply chain management by providing timely access to resources and managing relationships with suppliers, ultimately affecting the business's overall operations.
