The easiest way to understand the difference between procurement and purchasing is to consider an example. Suppose you’re buying a new car. If you’re planning to buy a new car you’re likely to consider the number of seats you need in the vehicle, whether it needs to be a full drive, a sedan or an SUV. Then you would actually start looking at all the manufacturers and what the manufacturers have to offer. Afterwards, you would look into the prices of the vehicles.
The first part involving research of the industry is procurement. It includes understanding how much you want to spend on the type of car you want, how many seats you need etc. The later part of estimating the value price refers to purchasing. First determine your expectations from the product.
Once you know what you want, you can go out and find what you want for the right price. Sometimes the service capability of the dealership might outweigh a cheap deal. It could be the aftermarket surface or the warranties that you’re after but all of those things become purchasing as compared to procurement.
Do Procurement and Purchasing Always Perform Different Functions?
In smaller businesses, they might be the same. To put it simply, purchasing is a subset of procurement. It occurs in as much as procurement guides the purchasing process. A purchasing manager or officer typically won’t buy anything unless the contract has been set up by the procurement team first. Both the terms are linked and affect each other. However, there are subtle differences that one should know about. Sometimes they are decentralized in as much as an Operations team may look after purchasing.
The procurement has the authority on behalf of the business to engage with suppliers. They exercise control over who to deal with and the purchasing team executes on their order. The person managing the purchasing team would typically be a junior resource to the business.
If you consider procurement as a function of the business, it essentially supervises three separate areas. Those three parts would broadly be broken into category management and the understanding of what you’re going to spend and how you’re going to spend it. A category manager would hand off to a sourcing team and the sourcing team would go out and set up the supply first.
Then they would hand off to a supplier relationship management team who’ll make sure that the supplier is performing in accordance with the requirements of the company.
Procurement is researching and gaining insight at what’s available in the market. It is looking at the market and comparing all the different brands and their features. Whereas, purchasing is going out and negotiating the deal and buying the product. Procurement is required to engage with all parties to ensure that the money is being spent well and the business is getting the value from their investment.