Procurement vs purchasing: Are they one and the same?
Key takeaways
- Procurement and purchasing are often confused as being the same, but each serves different purposes within a company.
- Purchasing roles are more transactional, while procurement roles are more strategic.
- The purchasing process is a subset of a much larger procurement process.
- Purchasing and procurement functions differ, but both are essential to a company.
To many, purchasing seems just as it appears on the label. You buy things. You pay for them. Straightforward enough.
Procurement sounds (and is) a bit more involved. And depending on who you ask, it might even be an entirely different department.
So, what is the difference between procurement vs purchasing, and how can you tell when the ball is in a particular court?
What’s in a name? The difference between procurement and purchasing
If you’re confused over the differences between procurement and purchasing, you’re in good company. Many people are on a search for the same answer.
This confusion occurs for a few reasons:
- Both purchasing and procurement are sourcing and buying processes with moving parts. Depending on the type and size of your company, it may refer to your buying department as “Purchasing” or "Supply Chain." If the company has many projects of varying scope, it might distinguish between procurement and purchasing for ease of use even though there are ways they overlap.
- Many companies and publications use these terms interchangeably. This can add to the confusion when trying to talk about purchasing software or goods. It can also make market research difficult. For instance, just because a SaaS product is good for your purchasing team doesn't mean it'll be mutually beneficial as procurement software and vice versa.
- Some companies have teams that are responsible for both purchasing and procurement functions. For example, if a company has this business model, the same people who handle procurement-related strategic sourcing will also manage the more transactional purchasing activities. If you're trying to distinguish between procurement vs purchasing, these hybrid departments might cause some confusion.
These functions provide different kinds of support for most companies and tackle different types of projects, even if they share common goals. Here are some key responsibilities that are common in purchasing and procurement and which area is usually responsible for each.
Purchasing
Procurement
Purchase requisitions
Yes
No
Purchase orders
Yes
No
Payment terms
Yes
Yes
Vet suppliers
Yes
Yes
RFQs
Yes
Yes
Supplier relationship management
Yes
Yes
Contract negotiation
No
Yes
Contract management
No
Yes
Long-term strategy, forecasting, budgeting
No
Yes
RFPs
No
Yes
What is purchasing?
Purchasing is a process by which you get the goods and services you need to run your business. It happens whenever you spend company money to buy items for company use. This could be services, raw materials, snacks, trade show swag, etc.
It may also include paying for health benefits, salaries, or contracting fees. Essentially, whatever you happen to buy is part of the purchasing process. When you think about purchasing, think purchase requisition and purchase order.
Purchasing is a subset of procurement.
Generally, you can expect the purchasing process to go as follows:
- Get a request from a stakeholder (usually referencing a specific supplier/solution).
- Vet the request for established requirements.
- Create the purchase documents for the desired solution.
- Get the product delivered or begin the service.
- Evaluate the product or service.
- Pay the supplier.
It’s fairly straightforward. While there may be some internal workflow approvals for the purchase, the purchase can move along quickly if the budget and supplier are in place. It can move even quicker with a procure-to-pay system in place that includes a method to automate workflows.
This type of buying works well for smaller, more straightforward requests. For instance, it's good for purchasing materials or consumables.
Imagine that your company negotiates a deal, including pricing and payment terms, with an office supplies supplier. Once the deal is in place, stakeholders are free to order items needed without a labor-intensive process. The office can get stocked up, and the supplier is paid seamlessly through a purchasing process.
Common purchasing titles
To further help distinguish procurement vs purchasing, look at the titles. Here are some common purchasing titles you can expect to see:
- Buyer
- Category Purchasing Manager
- Commodity Manager
- Purchasing Agent
- Purchasing Associate
- Supply Chain Specialist
How does a procurement process differ from a purchasing process?
Alright, now we're all set on purchasing, but what exactly is procurement? And how is the procurement process different?
The dividing line between purchasing and procurement is a matter of size, complexity, and process. While each company has parameters for purchasing and procurement, these factors will guide the policy.
As these aspects increase, transactional purchasing may not be enough. You may need a more strategic process to get the fairest deal or terms, ensure requirements, meet long-term goals, or vet the solution through finance, security, and legal. For instance, when you’re negotiating net new software that needs to go through multiple reviews by different teams, you’re in procurement territory.
The procurement process is a longer, multi-departmental effort. Typically, a procurement team dedicates its time to large-scale, high-dollar negotiations and strategic sourcing processes. However, the procurement process also goes beyond the purchase or contract close. Supplier management, KPI assessment, and ongoing evaluation are all part of the procurement strategy. A procurement department may use an e-procurement solution that includes procure-to-pay but also might include a sourcing module and more.
As Omar Ghani, Reddit's procurement leader puts it, "In the procurement world, we’re always asking ourselves, how can we improve systems?" In other words, procurement strives to streamline operations and goes much further than just an initial purchase.
Here are five parts of the seven-stage procurement process where differences between procurement and purchasing stand out.
1. Identifying needs
Procurement is a corporate and finance strategy. The team will usually help with planning, forecasting, and budgets. In addition, they have insight into how these projects fit into the larger scope of the business.
2. Evaluating suppliers
Where purchasing often starts with a supplier recommendation, procurement-level projects require competitive analysis. The team is responsible for putting together a list of suppliers, sometimes following the three bids and a buy method, putting together an RFP or RFQ for vendors that meet preliminary requirements, and more. If a stakeholder from the company comes to procurement and finance about a new software purchase, for example, they ensure that person has gone through the necessary SaaS buying process steps first. They then evaluate their options, choose the best solution based on preset internal priorities, and fill out a procurement request form.
3. Negotiation
For complex contracts, the procurement negotiation process is an integral part of procurement. The team of expert negotiators must vet the deal for security and legal requirements. They will also aid the negotiation of terms — contracts, cancellation, and service-level agreements (SLA). They help the deal come together on price, features, and contract specifics. Once a contract is in hand, procurement will conduct quality and KPI analysis to ensure the solution works as intended.
4. Supplier relationships
Once a negotiation is complete, the work of good supplier relations begins. Where smaller purchases are often one-and-done, vendor management is a larger undertaking for expensive and complex solutions. Managing contract details and maintaining rapport with the supplier is future-proofing. For example, a multi-year contract might see changes, feature expansions, scaling, or right-sizing. Better relationships in these circumstances yield better outcomes.
5. Payment and renewal
Once they seal the deal, procurement handles anything payable on the contracts in place. This is complex and time-sensitive, requiring close attention to cancellation dates, windows, price, etc. Depending on the tech stack and company size, many procurement teams find it helpful to bring in a vendor management system. This can help in contract management as well as negotiating deals and ensuring renewal best practices. In addition, doing so frees up their time and resources to commit to high-impact projects.
The ultimate aim is to reduce spending and secure the best solutions for a growing business. While procurement may not have a hand in every transaction, for large, mission-critical purchases and contracts, their involvement can result in many thousands of dollars in cost savings and equally that much in cost avoidance.
Common procurement titles
Here are some titles that are common to see in procurement:
- Procurement Agent
- Procurement Manager
- Procurement Officer
- Chief Procurement Officer
- Procurement Specialist
Procurement vs purchasing: A conundrum?
Not really.
While it may seem confusing, distinct differences make both purchasing and procurement essential functions of a company.
The bottom line is, procurement and purchasing responsibilities differ, but neither is more important than the other. Procurement professionals and purchasing professionals alike strive to keep teams as productive as possible while conserving the most budget. Whether Buyer or Procurement Agent, the goal is to get teams what they need, when they need it, and for the best value. They create advantageous relationships with suppliers and pave roads for future growth. And often, they work together to make those things happen.
Are you managing complex and cumbersome SaaS stacks that occupy much more of your time than you'd prefer? We can help. Contact Vendr today to see how we can help you change the way you buy SaaS forever.
