There’s a lot of confusion regarding the difference between procurement and purchasing. Most professionals believe they are the same, but they don’t realize that their functions differ from each other.
Wait, the end result is purchasing a product, right? So, isn’t procurement the same as purchasing?
If you’re wondering the same thing, this article is what you need. Procurement and purchasing are essential to running seamless business operations. The process has come a long way, with procurement software now handling the entire purchasing process for enterprises.
But to effectively manage and streamline it, one should understand the difference between procurement and purchasing. So, let’s take a closer look at the definition, differences, and similarities of procurement versus purchasing.
What does procurement mean?
Procurement refers to the entire process of acquiring products or services. It involves requirement analysis, vendor research, vendor selection, negotiation, contract signing, and purchase.
The goal of procurement is to obtain the best possible price and terms while still meeting the quality and quantity requirements of the buyer. To achieve this goal, procurement must be strategic and data-driven.
Procurement definitions concur that procuring organizations must clearly understand their needs, objectives, risks, and potential suppliers before negotiations begin. Furthermore, they must be prepared to leverage data throughout the process to make informed decisions.
What is purchasing?
Purchasing is the act of buying products or services. It is more like a subset of the procurement process. It involves receiving products, verifying purchases, sending GRN, creating invoices, etc.
Some businesses skip the entire procurement process and go straight to purchasing to save time. While this approach may work for some buyers, it does not always provide the best price or terms.
Therefore, buyers must understand the importance of going through the meticulous procurement process before purchasing the product.
Procurement vs purchasing: The Similarities
While there are some significant differences between procurement and purchasing, there are also some similarities. Here are some similarities in purchasing vs. procurement
- Both involve negotiation: One similarity between these concepts is that both involve negotiation to get the best possible price and terms for the buyer while ensuring quality and timely delivery.
- Both require research: Another similarity is that both require market research and supplier selection to identify potential suppliers who can provide what you need at a fair price.
- Both have risks: Procurement vs purchasing involves risks such as supplier default or poor-quality products/services. Considering all risks before moving forward with any purchase decision is essential.
- Similar result: Even though the steps vary for each process, the result is still the same, purchasing a product for the team.
What is the difference between purchasing and procurement?
Now that we’ve defined each concept individually and understood their similarities, let’s look at how they differ. The primary difference between procurement and purchasing is the purpose, followed by the ideas of timing and approach.
Procurement vs Purchasing: How can they benefit your business?
Procurement fulfills existing needs and helps ensure that an organization gets the best possible value for its money when acquiring goods and services. Similarly, purchasing ensures that an organization gets the best possible value for its money in addition to negotiating favorable contracts and eliminating waste.
While purchasing delivers cost savings, procurement offers many benefits, like improving quality control, managing supplier relationships, reducing lead times, increasing process efficiency, and enhancing compliance.
If your goals are short-term, then proceed with the straightforward purchasing process. You need a well-defined procurement process to plan your purchases meticulously to achieve long-term goals.
Challenges of procurement and purchasing
Purchasing vs procurement are two of your business's most essential and challenging aspects.
From finding suitable suppliers to negotiating the best terms to managing budgets, a lot goes into keeping your operation running smoothly. Here are the three biggest challenges you may face and how to overcome them:
1. Managing risks
The biggest challenge in procurement and purchasing is managing the risks associated with third-party vendors and suppliers.
When working with suppliers, you must guard against supplier risks (such as financial instability or poor quality control), legal risks (such as non-compliance with regulations), and reputational risks (such as being associated with unethical suppliers).
Your risk management process should include conducting reference and background checks on individuals and companies.
Additionally, ensure you clearly understand the terms of your agreement, so you know what to expect from your supplier. Finally, establish procedures for addressing quality issues or other problems in your relationship.
By taking these steps, you can minimize the risk associated with working with suppliers and ensure that your organization gets the products and services it needs without experiencing significant problems.
2. Staying within budget
The second most significant challenge procurement and purchasing professionals face is staying within budget.
With the ever-increasing cost of goods and services, finding ways to cut costs without sacrificing quality can be challenging. However, you can use a few strategies to help keep your spending in check.
First, take advantage of technology. Several e-procurement and e-purchasing platforms can help you track spending, compare prices, and find new suppliers.
Additionally, many suppliers offer online discounts or coupons you can take advantage of. Utilizing these tools can help you save money without compromising on quality.
3. Managing supplier relationships
One final challenge in procurement and purchasing is managing vendor relationships. Given the importance of these relationships to your operation, they must be managed effectively.
This starts with having clear expectations for each supplier and maintaining open communication channels to address problems quickly and efficiently.
Additionally, ensure you have a process for dealing with changes in supplier contracts or pricing structures—this will help avoid disruptions in your supply chain.
Finally, regular review meetings with each supplier can help ensure everyone is on the same page, fulfillment is being made according to schedule, and any potential concerns can be identified early on and addressed before they become significant problems.
How can e-procurement solutions help your business?
In today’s digital world, time is money, making efficient procurement and purchasing processes necessary. With the right e-procurement solution in place, businesses can streamline their procurement versus purchasing processes, saving time and money.
Here’s a look at how e-purchasing and e-procurement solutions work.
- Creating and issuing purchase orders
- Managing supplier contracts
- Tracking product/service deliveries
- Processing and timely payment of invoices
- Generating insightful, visual-rich reports
- Keeping track of spend and available budget
- Identifying and highlighting dark purchasing.
Procurement versus Purchasing: Where does SaaS come in?
The concept of procurement vs purchasing fits the context of SaaS applications too. Businesses have a well-defined procurement process for purchasing SaaS applications.
Some organizations skip the procurement process and purchase SaaS apps directly. But the challenge is the number of applications.
For seamless business operations, enterprises utilize more than 200 SaaS apps. To purchase and manage these applications, procurement teams must be equipped with robust SaaS procurement software.
CloudEagle is a platform that streamlines SaaS procurement and purchasing processes for businesses worldwide. Here’s how it can benefit you:
- Procurement workflows to automate repetitive request approvals tasks to accelerate the purchasing process.
- Complete transparency over who’s raising the request and handling the specific tasks in the SaaS procurement process.
- Teams can see the progress in real-time.
- Assisted buying experts in negotiating with the vendors for you. CloudEagle experts will negotiate on your behalf and purchase the right product at the right price.
- Vendor recommendation engine to make vendor research swifter.
- Customizable intake forms and workflows for any procurement, including hardware and software.
- Pre-built RFP templates to make the SaaS procurement process faster.
- Contract management and vendor management modules to secure SaaS contracts and enhance vendor relationships.
Procurement or purchasing, it doesn’t matter; CloudEagle will suit your business needs and ensure you purchase the right product from the vendor at cost-effective pricing.
You use CloudEagle to empower your in-house procurement team or outsource your procurement process to the experts at CloudEagle.
Check out how our customer saved $450,000 by outsourcing their procurement process to CloudEagle →
So there you have it—the definition, similarities, and differences between procurement and purchasing in a nutshell! As you can see, they are two very different things that serve similar purposes within a company.
Hopefully, this article has cleared up any confusion and given you a better understanding of how these terms differ.
Cloud-procurement solutions like CloudEagle help streamline your procurement process by automating critical procurement tasks and procedures from the supplier selection phase to the point at which a purchase order is generated.
By doing so, CloudEagle saves businesses time and money. In addition, it offers SaaS management and spend management features to save on SaaS spend and keep your SaaS stack optimized.
Are you looking for ways to manage your procurement more effectively and efficiently? Sign up for a free demo of CloudEagle today.