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?
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:
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.
Supplier relationship management
Long-term strategy, forecasting, budgeting
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:
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.
To further help distinguish procurement vs purchasing, look at the titles. Here are some common purchasing titles you can expect to see:
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.
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.
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 and choose the best solution based on preset internal priorities.
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.
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.
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.
Here are some titles that are common to see in procurement:
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.
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At DPW Amsterdam 2022, Vendr talked with Head of Procurement Michelle Vita to cover procurement automation, agility, and ways to empower stakeholders. Check out the highlights.
With the explosion of SaaS, staying ahead of SaaS Procurement and ensuring a lean tech stack has never been more challenging. Procurement professionals work daily to tame the “SaaS vortex” and ensure they maintain value as they add complexity and license volume to the stack. This has forced an evolution in Procurement and new approaches for professionals managing the software buying process.
Michelle Vita is well-versed in this evolution. As a procurement professional with over a decade of building procurement processes for business, Michelle’s career has evolved from traditional procurement roles in private real estate development to high-tech roles in real estate technology and SaaS. Most recently, Michelle took the reins as Head of Procurement for cloud-scale monitoring and security firm Datadog.
At the recent Digital Procurement World conference, Michelle took the time to sit down with Vendr’s KR Barron to talk about taming the SaaS vortex and building a supportive, sustainable procurement practice for Datadog. She shared her insights on team-building, growing an agile organization, and empowering your stakeholders.
We’ve captured the highlights from the session below.
Michelle has spent three and a half years at Datadog evolving the Procurement team from a “department of one” into a thriving, progressive team with operational and strategic mandates.
During that time, she’s come to believe the heart of a progressive, strategic Procurement function is its people.
“There are two types of Procurement personas now,” she explains.
“Classic, traditional procurement professionals, with a 7-step process, etc. Then there’s the new procurement professional. They’re more strategic and agile, more a jack-of-all-trades. The industry, in general, is evolving toward this model.”
These young, powerful professionals and the explosion of SaaS have brought about this new breed of procurement professionals.
These new professionals are also changing the way their stakeholders think about SaaS. They’re empowering employees to negotiate on behalf of their company to buy the right tools, with the perspective of “buying as if you were the owner of the company.”
Michelle describes her own team at Datadog in these terms. Her first hire came by way of an internal candidate who already understood the procurement process from the stakeholder perspective. Michelle described this agile-focused colleague as “one of the best hires I’ve ever had.” This versatility has allowed them to grow with the team, take on new projects, and execute effectively.
Since that first hire, Procurement at Datadog has evolved into a two-pronged department, with members focused on both operations and strategy. The team includes progressive-thinking procurement and contracts experts who leverage technology to educate stakeholders, create good policy, and create a seat at the table for Procurement.
The economic uncertainty of 2022 has ushered in a more measured approach to buying than in previous years. Even as SaaS has become more challenging to optimize, being strategic about your business cases and volume has a positive impact on the software budget.
Where once the rationale was to buy “as many licenses as we can move into someday,” Michelle and Datadog stick to a strategic, “buy as you go” license approach that helps the team save money and be more conservative. Having licenses waiting on the shelf for someday “is money that goes to waste.”
The temptation is to buy the number of licenses you’ll need for a future date, incentivized by the perceived savings of a volume discount. But, “taking advantage of a discount isn’t good if they’re just sitting on a shelf unused,” reminds Michelle.
Instead, the team has become more focused on getting the licenses they need for the current team. Procurement has also focused on the best management of those tools, performing license audits, and ensuring proper utilization. They’ve also gotten more strategic about tier levels. Datadog assigns top-tier licenses for some power users and viewer licenses for others that are cheaper.
When faced with a lack of resources—be it budget, headcount, or data— Procurement is tasked with applying agility to the procurement process. Michelle is always on the lookout for places to reduce human activity.
“I’m a huge supporter of relieving the team of administrative burdens that don’t add value.”
To do this, the Procurement team looks at the end-to-end process, identifies those processes taking up human touch and time, and automates them.
The team has turned once onerous processes into touchless processes that reduce friction in day-to-day operations. For instance, vendor follow-ups used to take up considerable time for the team. Now, those processes are controlled by Robotic Process Automation (RPA). Bots now perform a follow-up workflow for outstanding items, allowing procurement to focus on higher-level tasks.
“Agility is important, but also [means] working with our partners, establishing relationships, and using them to grow.”
The contract process also slowed down internal progress, so the team found ways to reduce friction and remove human intervention from the process. By integrating their contract system with an e-signature tool, they can move contracts for review to Legal automatically, collect signatures, and speed up the contract execution process.
Agility relies on partnerships, so as part of the legal contracts automation, the Procurement team worked with vendors to use internal paper for contracts. Using an internal template that is acceptable to vendors gives the legal team more control over the review process and speeds up the time to completion.
Stakeholder education plays a huge role in creating a collaborative, functional relationship between procurement and the larger organization. The key, says Michelle, is to empower stakeholders with just the information they need to execute.
The Datadog team invested time and resources in ensuring stakeholders had what they needed to learn the ropes. While the company had some resources in place, “Sometimes you need resources for various types of people since everyone learns differently.”
The road to better stakeholder education started with a conversation. “We gathered stakeholder feedback from a survey on our processes.” The team issued an anonymous survey asking users to give their feedback about the purchasing process and the resources available to them.
“Training kept coming up and coming up.”
The team realized that even though resources were out there, the onboarding of those resources could be improved. “Our internal team feedback… kept coming up that people were starting [at the company] and not watching the videos.” Those conversations allowed the Procurement team to identify the issues and develop a plan.
Automation has a part to play in the empowerment process, as well. “We wanted to empower stakeholders to do things that don’t require procurement touch.” To help stakeholders gain confidence in buying on behalf of the company, Michelle and the team implemented a guided help service for users.
Modeled on the “Clippy” office assistant featured in Microsoft Office, the procurement assistant program sits on top of the Procurement system, providing helpful pop-ups for users as they engage with the UI and perform routine tasks. If the user gets stuck or needs assistance, the assistant robot guides them through the process with a “click here” approach. This allows stakeholders to self-service needs without relying on procurement team members directly.
Ideas such as these allow Procurement to remove itself from the areas where it doesn’t add value while still maintaining agility for the wider team. From there, they can develop stronger relationships between departments, gain a strategic seat at the table, and ensure that once they have that position, they can deliver value.
For more tips on driving an enablement, people-first approach in your Procurement practices, take the advice of Sören Petsch, Head of Procurement at CommerceHub.
After all, “If Procurement is the Cost Savings Department, we break the trust of our internal stakeholders all the time.”
A software procurement project plan optimizes the way you buy software in support of a project. Learn more about developing a solid software procurement plan.
Launching a new project is a multi-faceted process. Managing the flow of RFPs, purchase orders, and procurement documents require a comprehensive understanding of the process and commitment from all team members.
Software procurement should be a priority in any successful procurement plan. A significant portion of your project procurement might involve changes and additions to the tech stack throughout the project schedule. Managing this complexity within the procurement management plan can greatly improve the cost efficiency of your project, but how can you accomplish it successfully?
Today we’ll discuss using a procurement project plan methodology to control your SaaS buying in large-scale projects. We’ll cover the steps you should take in planning for and purchasing software, what you should include in your plan, and costly issues to avoid when planning software purchases as part of your procurement activities for the project.
A procurement management plan is a strategy for getting goods from outside vendors and suppliers in support of a project. Procurement management is one component of project management and follows a specific process for ensuring the right goods are delivered for the project, at the best price, under the right terms, at the right time.
A procurement management plan outlines all the goods and services needed and lays out a process and timeline for acquiring them. It also intersects with the budgeting process of the project to ensure software buying doesn’t overrun the total planned cost.
The more detail you bring to a software procurement project plan, the better your outcomes. When building a plan to buy SaaS software in support of a project, your procurement team should include the following information:
Establish the total software needs of the project, including categories such as:
For every app, outline the number of users and variety of user types necessary to aid productivity and optimize spending. Consider the percentage of time users will spend interacting with the software, and whether subscription or usage-based pricing might be advantageous. Consider the length of contracts necessary to fulfill the needs of the project objectives without spending money on orphaned tech products after their useful window within the project.
When managing a large-scale or multi-year project, it’s important to manage apps and services, sunsetting those no longer needed in order to avoid excess software costs. Setting up contract management for your software ensures that licenses don't auto-renew beyond their expected useful life.
Follow these steps to establish a strong, optimal software procurement plan for your next project:
Before you procure goods for a project, you must know — in detail — everything needed to bring the project to completion. So the first step in the development process is to thoughtfully outline the comprehensive list of tools and services needed throughout the contract schedule. This may include materials, services, and software. The list should be as comprehensive as possible.
Understand and outline the contract terms and conditions each supplier must meet. This could encompass departmental prerequisites, estimated cost, payment terms, contract type (for instance, annual subscription, usage-based billing, etc.), and other important components of the agreement. These contract terms will be used to negotiate for sourced goods.
Outline the potential project and contract risks to the degree they can be foreseen. Establish plans vendor risk management and establish protocols for evaluating and resolving risk issues. Evaluate the potential for third-party risks to your tech stack and where possible use proven, pre-vetted suppliers to meet contract needs. Consider the project impact of delays or inadequate contract compliance when looking at suppliers and assessing risk.
Establish the costs associated with procuring necessary equipment, services, and software during the project. Begin collecting information for an RFI, RFP, or RFQ process to satisfy the needs of the project. Consider using beneficial procurement techniques such as strategic sourcing, prequalified vendor lists, or e-procurement. Establish pricing benchmarks and standard pricing where practicable.
Consider any project constraints (time, execution, financial, or supply chain-related) that could impact the future feasibility or execution of the project. As with risk management, establish contingency plans for any likely blocking issues and consider the cost of enacting these plans as part of the project budget.
Gain approval of preliminary plans from departmental stakeholders. Evaluate the project bids and include necessary stakeholders in the decision-making process. Including all relevant stakeholders de-siloes spending and contractual data and ensures all parties begin the project with full visibility into the process. Consider a decision criteria matrix to help evaluate bidders objectively and efficiently.
Projects with considerable third-party procurement needs require a vendor management plan in order to maintain high visibility, track performance metrics, optimize cost, and ensure continuity in procurement and delivery. This is especially important for software, where a single project can still generate dozens of contracts representing hundreds of users and considerable budget allocation. Consider using a vendor management platform to ensure the smooth operation of your project technical stack.
Software procurement is a team sport. Involving your full project team in the process early will ensure a smooth implementation and optimal outcomes when purchasing software.
Getting early approval for estimated budgets makes the planning and negotiation process far easier. When included early in the process, finance can guide pricing discussions, provide competitive pricing data, and collaborate on negotiation.
Understanding how procured software will fit into the larger software structure can inform your request for proposal (RFP) process, and ensure any security requirements are considered prior to negotiations and implementation. IT may also be able to assist with supplier evaluation based on its knowledge of the company’s total technology portfolio.
Your legal team is ultimately responsible for the strength of agreements it executes. Therefore, involve Legal early in the process to ensure any negotiations integrate any legal prerequisites. Additionally, identify the Legal team contact responsible for the contract review and approval process, and integrate them into the workflow to ensure they have the capacity for upcoming legal review.
Moving too fast or cutting corners during software buying mistakes can have costly and consequential long-term effects. Avoid these three common software procurement issues:
The inclination to move quickly on software agreements can be a costly and frustrating mistake in the long term. Ensure that each software purchase gets the competitive analysis and evaluation process it deserves. This results in better pricing and lowers the potential for third-party risk.
Depending on the tool and the type of contract, underestimating usage and feature needs can result in software costs that far exceed the planned software budget. When establishing needs in the early stages of a procurement project, consider outlier scenarios that could drive up cost. Be sure to address these in the course of the negotiation. A general rule: you should never be penalized for becoming a better customer.
Tech stacks are complex and evolutionary. When establishing a procurement project plan, start your software procurement on the right foot by setting up deals in a software management platform. This ensures active monitoring and lifecycle management for licenses and usage, compliance with contract terms and SLAs, and ample research time at renewal. It enables a robust and continuous vendor performance process.
Vendr helps companies of all sizes to streamline and clarify their SaaS buying process. Using procurement software as part of your procurement management plan can give your organization the visibility and real-time reporting features it needs to successfully manage services, ensure strong relationships with project partners, and maintain budget optimization while delivering the software necessary to ensure project success.
A sound procurement strategy ensures a company stays profitable by getting the most return on its resources. Here’s how to implement an action plan.
Many moving parts come together to form a procurement strategy that upholds profitability. According to a recent Deloitte survey, reducing costs is top of mind for 76 percent of chief operating officers.
Accordingly, it’s critical that procurement teams get clear on their objectives, how they can lower operational costs, and what new, low-cost initiatives to execute to consistently hit KPIs.
Below, we go through the ins and outs of procurement, what it takes to create and apply a strategy, and how to ensure it’s contributing to your business’ bottom line.
Procurement is the process of purchasing goods and services, including software, necessary to run company operations. It’s also the practice of effectively managing resources to ensure a company gets the most value for its spending strategy.
There are many business goals under the procurement umbrella that ultimately lead to the same result: cost savings. Procurement initiatives like risk management, optimizing budget allocation, streamlining supply chain timelines, and even running different types of spend analysis are all strategies to keep a company lean yet competitive.
Additional procurement goals include:
Strategic procurement can include many business motions designed to keep company spending low while increasing value.
Three of the most important overarching categories in a sound procurement strategy are cost reduction, risk management, and quality control.
Cost reduction: Motions like vendor development, supplier optimization, global sourcing, tail spend analysis, and determining contract ROI are all direct efforts to reduce company costs.
Risk management: Risk reduction strategies like supplier optimization, supply chain management, green purchasing, and product lifecycle forecasting are procurement strategies designed to mitigate risk and streamline operations with the fewest errors or setbacks possible.
Quality control: Supplier risk scorecards, KPIs and metrics, and supplier compliance audits are built to handle quality control. Quality control processes are necessary for companies to ensure goods and services are delivered according to purchase order terms and procurement policies.
Every business is tasked with designing a procurement strategy that considers its objectives and methodologies. With the help of software, businesses can ensure smoother procurement workflows, access permission configurations, and centralize key purchasing and vendor data to make meeting desired goals easier.
Vendr can help build the SaaS procurement process you’ve always dreamed of. Learn more.
Establishing a procurement strategy requires planning and documenting before it can effectively be enforced. This way, procurement teams have clear guidelines to inform decision-making, determine how best to deal with vendors, and ensure best practices are applied.
A general procurement strategy framework is made up of—
MixPanel, a business analytics service company, established a procurement strategy that allowed them visibility into resource allocation so it could streamline its purchasing workflow. Their goals were to spend less time negotiating SaaS contracts, to shorten their procurement cycle, and to reduce unnecessary payments.
With their strategy, they quickened the SaaS acquisition process, stopped duplicate spending and overpayments, and shortened their process timeline by 75 percent. By implementing a procurement strategy, MixPanel’s procurement process went from three months to three weeks.
Check out the video below to learn more about MixPanel’s procurement journey.
If you’re creating your first procurement strategy, follow these steps:
Begin by drafting a procurement strategy statement from the ground up. Consider outlining benchmarks, procurement practices, business objectives, tools you’ll need, and your action plan to meet and possibly even exceed your procurement goals.
Outlining a procurement strategy may take weeks or months. Involving key company stakeholders ensures you’re covering your bases and getting visibility into the needs of each company department.
Today’s data-driven world requires speed, automation, and ease of use. Thankfully, there’s plenty of procurement software built to help companies create, enforce, and run their procurement strategy.
Without a digital procurement solution, companies run the risk of committing costly human errors, losing track of who owns which procurement initiatives, and having a harder time analyzing data to draw valuable insights.
Procurement software accelerates the SaaS procurement process from beginning to end. If you're buying or renewing software, a service and platform like Vendr can share valuable insights to make this process easier.
Procurement software will allow you to:
As you vet procurement software, it's critical to ensure it can scale with your company and that it’s customizable enough to mold to your existing procurement policy and its workflows.
What’s your company’s current spend culture? Is there a lot of maverick spending procurement teams aren’t managing? Can you get third-party data to conduct market analyses?
Knowing where you currently stand is necessary to improve your current procurement numbers. Data sprawl can quickly get out of control and become siloed without any efforts to centralize it. Without relevant purchasing data, it becomes harder to implement a procurement strategy that’ll lower spend, account for maverick spending, and uncover spend leakage and overspending.
Running a comprehensive operational data analysis requires gathering, organizing, and categorizing data in one platform. This takes gathering spending data from internal stakeholders, like managerial leadership, and external parties, like vendors. Centralizing data ensures accuracy and visibility, and it enables businesses to arrange and track historical data as it is added.
With a data-driven procurement strategy at the helm, determining clear business objectives becomes easier.
Here are a few examples of procurement objectives:
Data-driven decision-making requires data and analytics tools that add visibility into a company’s spending patterns. Along with different types of spend analysis, procurement teams can use data to accurately determine how well their efforts are paying off.
As you make decisions about vendor relationships, contract management, total cost of ownership (TCO), or even maverick spending, use different types of data analyses that provide relevant insights.
Contract spend analysis: Contract spend analysis draws insights from more granular data like individual item purchases. Once purchases are matched with corresponding departments, it’s easier for procurement teams to point out recurring purchases, maverick spending, or overspending patterns.
Payment terms spend analysis: This analysis helps teams use data to pinpoint vendor discounts that aren’t being used. For example, an internal invoice management system that automates payment processes and quickens transactions can be leveraged to lower expenses via early payment discounts.
Tail spend analysis: Tail spend is notorious for being an area where companies tend to overspend. A tail spend analysis looks at smaller purchases, like office supplies, to see where additional costs can be cut. Tail spend analyses enable procurement teams to manage spend leakage and control spending patterns with updated company policies.
Category spend analysis: One effective way to control overspending is to run a category analysis. Category analyses give teams insight on which categories use the majority of resources, which categories to consolidate, and where to improve sourcing strategies to uncover new savings opportunities.
Supplier spend analysis: Analyzing supplier transactions is critical to improving vendor relationships. When teams create a list of their top supplier contracts based on their cost-effectiveness, the data can point them to supplier relationships that need special attention or a better negotiation strategy.
Working closely with your finance, procurement, or IT teams, Vendr is a connected source of truth that companies can leverage to reach their business objectives. Vendr works closely with your team to create or optimize your ideal purchasing process so finance leaders can be in the loop on every dollar spent and get the fairest price available.
With Vendr, every step of the buying experience is tracked and accounted for. Once integrated with your existing system, Vendr ports in data from all connected sources so teams have one unified view of key SaaS buying and management data.
Learn how much you could save on SaaS with Vendr’s free savings analysis.