With the demands on procurement becoming ever more urgent, CPOs in nearly all industries are coming around to the value of going digital.
Purchasing vs Procurement – What’s Really the Difference?
When does purchasing become procurement and when is procurement actually just purchasing? Are the two terms not simply interchangeable?
We can begin with some standard definitions:
Purchase: to obtain something by paying for it.
Procurement: the action of obtaining or procuring something.
In these simple statements lies the answer, or at least one answer. Purchasing can be thought of as the specific action of selecting an item that is required and then executing a transaction to pay for that item.
Procurement, on the other hand, can be thought of as everything that leads up to the actual purchasing and perhaps several steps that follow.
Think of it as a shopping trip. You might decide you need a new toaster – your current appliance is 10 years old and reports from other departments suggest there is an on-cost associated with poorly grilled baked goods. The opportunity, then, is the improvement of familial relations; the tactic is to locate and ultimately purchase a suitable replacement device.
Going online, reading reviews, browsing stores – this is your sourcing activity and while price is a key factor, it is not the only consideration. Number of slots, bagel option, toast-from-frozen, aesthetics and user opinions — all have a different role to play in your selection of the device.
As for your selection of the supplier – well, as long as your choice of toaster is available from multiple vendors – you now have to consider availability, delivery schedule, (and even delivery cost as a function of delivery schedule), returns policy, and again, user reviews.
Having identified the need, selected the item and the preferred supplier – you are now in a position to start the process of purchase.
“Should we buy a new toaster, dear spouse?” has been approved – perhaps, in several steps for some households.
“Yes, why not?” followed by “finally, dear parent, about time too!”
And you can place your purchase order. Procurement practice gives way to purchasing activity.
After purchasing is done, procurement practices can take over again.
“You spent how much on a toaster?”
“But it’s so…shiny!”
“And it took a week to get here, we shouldn’t buy from that store!”
An even more prosaic example might be …
“What are you buying online now?” (Compliance/Governance)
“Nothing! I’m just looking.” (Sourcing Opportunity Analysis)
“Hmm, well before you click on anything remember we’re supposed to be saving for a new toaster.” (Savings Project Management)
And so on.
Purchasing is important. Whether it is a toaster or a two-year contract for office supplies for fifteen locations. When you need something, purchasing that something needs to be fast, efficient and cost-effective.
This is what procurement, of course, is all about. Establishing the vehicles, the relationships and the best practices that allow purchasing, when it happens, to take place within a framework of control and oversight. Procurement makes for successful purchasing, but if the purchasing process is inefficient and out of control then all the hard work by procurement can go to waste.
“I went to all the trouble to research the best toaster, with all the right features, at the right price, and it was in stock. And what did you do? Wait a week for that!”
“But it’s so…shiny!”
“I don’t know why I bother!”
Purchasing remains in the hands of the people at the point of need. Strategic considerations, savings targets and framework agreements aren’t at the forefront of their minds when it comes to fulfilling an urgent requirement so it becomes imperative for the purchasing process itself to become the path of least resistance for the purchasers.
The secret is for procurement to make compliant purchasing easier or, in fact, to make maverick purchasing more difficult.
That’s where the technology can make all the difference. Why did we create the unified procurement platform? Well, one reason was so that procurement, sourcing, supplier management and, yes, purchasing, could all happen in the same place. All joined-up, connected and ultimately, visible, compliant and under control.
“I’ve done all the work for you. These are the three best toasters on the market. You can, of course do your own research, but if you click one of these right now, it will be here tomorrow.”
“Can I have that shiny one?”
“Of course, dear.”
Click. Purchase. Compliance. And that’s the difference between purchasing and procurement.