When you hear the words purchasing and procurement, you may consider they mean the same thing. While similar, they are different. You need to know the difference between them if you are going to be a business success. It will help if you know the answer to procurement vs. purchasing: what’s the difference?
Understanding the words
If you are asked procurement vs. purchasing: what’s the difference? Make sure you have a full and proper answer.
Purchasing - This is simply the process of buying the goods or services you need. A company owner purchases the services of staff, they purchase a new laptop, and they purchase the thank you lunch for staff who are working through.
Procurement - This covers the way that a company acquires goods they need to perform. It covers looking for the services or goods, negotiating a price, and doing what needs to be done to get them. Arranging delivery, sorting out payment, and ensuring everything runs smoothly will all be covered.
How are they different?
An easy way to explain the difference would be to say that it is the process that must be followed. Procurement has a much longer process, and there will be a procurement process, whereas there will not be a purchasing policy to follow. The use of supplier is up to the person paying, and there are no questions or complaints about it. No one must be asked, and a contract is not needed.
It is a lot easier to purchase something as there are not the same restrictions. If a small item is needed, it will be a matter of using petty cash to buy it. There will likely be a form to fill in and a receipt to provide, but that is it. There is only going to be a small purchasing policy.
With procurement, it is a lot more involved. A lot of research will have to be done, and several possible providers found. They will put together a plan regarding their responsibilities for the contract's life and how much they will charge. The company procuring will have a panel that analyzes the applicants and see if they can agree on one to work with. Successful procurement is significant.
The procuring company will have policies for suppliers, and the successful applicant must adhere to them. They must consider best practices and convince the panel that they are up to the job. The contract will be written up and signed. It will cover what each side is responsible for and any timescales involved.
Consequences of mistakes
Mistakes can be made when considering purchasing vs. procurement: what’s the difference? With a purchase, there is little to worry about if it goes wrong. You could pay a few dollars more for a laptop or find that there is not enough food that everyone likes. It is annoying but not a significant problem. Mistakes surrounding the procurement process can be catastrophic. Projects could fail, a fortune could be lost, or a company forced to close. Court cases could be instigated, and for this reason, procurement should be undertaken by a procurement specialist.