Is there a difference between procurement and purchasing?

Procurement

Learn the differences between procurement and purchasing while discovering how specialized software platforms help support both business processes.

Vendr | Learn the differences between procurement and purchasing
Written by
Perin Adams
Published on
June 20, 2023
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Procurement and purchasing are terms often used interchangeably in business contexts. While both have to do with acquiring goods and services on behalf of an organization, the two are distinct processes.

Procurement is a more comprehensive and strategic process, whereas purchasing is more reactive, tactical, and transactional.

But it's not a matter of using only one or the other—procurement and purchasing work hand in hand. Learn the differences between procurement and purchasing, and discover how specialized software platforms help support both business processes.

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Procurement vs. purchasing: What's the difference?

The biggest difference between procurement and purchasing is the scope of the two undertakings.

Purchasing is narrow in scope. It’s simply about buying goods or services from already vetted and established vendors.

A classic example of purchasing in action is placing an order with your stationery vendor to restock your office’s paper supplies.

Procurement, on the other hand, has a much broader scope. The primary functions involved in the procurement process include:

For example, when considering options for onboarding a new social media marketing platform, procurement teams use the above steps to decide on a suitable service provider.

What is procurement?

Procurement is a set of strategic processes related to supply chain management, and it centers around acquiring the goods and services the business needs.

Common tasks included in the procurement process include:

  • Sourcing and vetting potential suppliers
  • Analyzing potential risks and making plans to mitigate them
  • Negotiating contracts and payment terms
  • Submitting purchase orders
  • Receiving and approving goods
  • Arranging invoice payments

At a broad level, the steps involved in the typical procurement cycle are:

  1. Statement of need or purchase request
  2. Strategic sourcing
  3. Purchasing
  4. Contract management
  5. Supplier relationship management

Learn more about procurement as a practice in our guide: How to build a procurement process at any stage of growth.

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What is purchasing?

Purchasing is the series of transactional steps businesses use to buy goods or services required for day-to-day operations.

As you may have noticed, purchasing is one of the steps involved in procurement, so it could be considered a subset of procurement.

The steps involved in the typical purchasing process are:

  1. Purchase requisition
  2. Approval
  3. Purchase order
  4. Receiving
  5. Invoicing
  6. Payment

Learn more about creating an effective purchasing process with our guide: 7 best practices to optimize your purchasing process.

Key differences between purchasing and procurement

Strategic vs. tactical focus

Procurement is a strategic process. Its goal is to develop and maintain relationships with strategic suppliers, minimize risk while maximizing efficiency and value, drive business efficiency, and enhance profitability.

Purchasing, however, is much more tactical. Its primary goal is to serve an immediate business need, such as purchasing a laptop for a new hire. As a secondary goal, the purchasing process seeks to reduce costs when possible.

As such, the decision-making process differs.

Procurement decisions consider a much broader set of inputs. For example, you may need to weigh the benefits of reduced risk against increased cost.

Purchasing decisions are much simpler, based mainly on cost and speed. Of course, for most businesses, purchasing is part of procurement, so analyses have already been completed during the sourcing phase.

Relationship-based vs. transactional

Purchasing is entirely transactional—you need it now, so order it.

Procurement, being more strategic, has a much more intense focus on maintaining vendor relationship health.

This begins during the supplier selection stage, where procurement managers prioritize vendors with whom they can form fruitful long-term relationships.

It then extends to vendor relationship management practices such as quarterly relationship review meetings and creating an internal vendor health dashboard to monitor performance.

Proactive vs. reactive

Purchasing is purely reactive. You only make purchases when needed (though you may do so in advance to mitigate against urgency, which can raise costs).

Procurement is more proactive, and a procurement strategy is more concerned with the organization's long-term goals. Procurement specialists anticipate internal needs and establish relationships with vendors to serve them.

For instance, a member of the procurement department may mitigate against vendor risk by sourcing backup vendors for key supply chain components.

This way, if something goes wrong with your primary vendor (e.g., they experience a shortage), your business is prepared to switch to a secondary supplier.

Risk mitigation vs. operational agility

Procurement leaders focus more on mitigating risks, whereas purchasing managers are more concerned with operational agility.

Sometimes these two factors are at odds.

For example, approval workflows are a powerful method for improving purchasing compliance, but they slow down purchasing agility by putting more sign-off steps between points A and B.

Item value vs. price

Where purchasing is more concerned with the final price of a product or service, procurement generally seeks to maximize value.

For example, the ticket price may not be the only concern when sourcing a new sales CRM. A cheaper option might save you money now, but it could cause growth bottlenecks due to usage limitations.

As such, a procurement leader may opt for a slightly more expensive option that isn’t going to throttle growth down the track.

How does software help in the context of procurement and purchasing?

Modern software systems assist both procurement and purchasing functions by enabling powerful features such as automation, customizable dashboards, and dedicated support during the software buying process.

Purchase approval workflows

Great procurement software platforms offer advanced automation, allowing teams to create custom rules that speed up work and minimize human error.

For example, with the SaaS buying platform Vendr, teams build customized approval workflows that route purchase orders or requests to the appropriate decision-making authority for approval.

Identifying, sourcing, and vetting new vendors

Identifying, sourcing, and vetting new vendors can be a time-consuming process. The most robust software tools in this category offer proprietary databases of potential vendors with all the information a sourcing manager needs to make an effective decision.

For example, with Vendr Explore, teams can easily search over 19,000 SaaS products to find the best solution and buy it for a fair price.

Platforms like Vendr even provide personalized support during the sourcing and vetting process, allowing access to a team of software-buying experts to bolster their internal team’s expertise.

Risk analysis and mitigation

Full-stack procure-to-pay solutions make for easier risk analysis and mitigation using features like templated risk matrices and customizable alerts.

Overlapping spend analysis

When software purchasing is decentralized—owned by department leaders rather than a centralized buying unit—it's not uncommon for an organization to pay for two or more tools that offer similar functionality.

This is known as overlapping spend, and it’s a critical concern for procurement teams looking to minimize costs and maximize return on investment.

Great procurement and purchasing tools allow team members to spot overlapping tools and decide whether consolidating licenses is smart.

Spend management visibility

A strong software tool designed to help purchasing and procurement teams provides spend management functionality, like the ability to visualize cost savings in real-time or automatically match invoices to purchase order numbers.

Vendr: The SaaS procurement and purchasing platform

Modern organizations' purchasing and procurement functions rely on powerful software tools to help achieve the long- and short-term goals outlined in a company’s corporate strategy.

For businesses for whom SaaS buying is a major part of that strategy, Vendr is a must-have solution for driving the software purchasing process.

Procurement professionals use Vendr to:

  • Streamline approval workflows to ensure purchase orders are signed off by stakeholders quickly
  • Create a competitive advantage by using price benchmarking to negotiate better deals with suppliers
  • Improve the bottom line by identifying areas where they can consolidate software licenses
  • Manage vendor relationships by tracking supplier KPIs

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Perin Adams
GTM Business Systems
Perin is the GTM Business Systems Analyst at Vendr, responsible for analyzing and optimizing the company's go-to-market systems and processes.

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