Procurement vs Purchasing: what’s the difference?
It is common to see people using ‘procurement’ and ‘purchasing’ synonymously when it comes to buying products and services for their business. Since both terms refer to buying items and external services for an organisation, they are often confused with each other. However, their goals, processes, and objectives are distinct.
An organisation’s purchasing processes and strategies will have a profound impact on its cost savings objectives and overall profits, so it is important to understand how purchasing differs from procurement.
What is IT procurement?
Procurement is the process of sourcing products and services from outside suppliers, manufacturers, and third-party vendors. Procurement is all the activities surrounding selecting what to buy and making choices under conditions of scarcity. It is vital for a business to make the right decisions in order to purchase high-quality goods and services at a reasonable price.
Procurement is a process that requires an understanding of business needs, to ensure sound decision-making when it comes to sourcing IT goods and services.
What is IT purchasing?
Purchasing is the next stage of procurement, which is the process of actually buying IT goods and services once the business has determined what is needed. There is more to purchasing than finding the right price. You must also consider customer service, warranties, payment terms, and other factors. Although many businesses attempt to establish purchasing standards, purchasing procedures can vary a great deal from company to company and from industry to industry.
What are the differences between procurement and purchasing
Although procurement and purchasing are connected, they aren’t the same thing. So how do we differentiate between the two?
Procurement aims at satisfying a company’s requirements. It goes beyond simply purchasing products or services. Procurement is about exploring different choices to find the optimum choice based on certain criteria. Cost, location, and other variables are all considered. Purchasing has short-term objectives, which are allocating business funds and acquiring a specific resource.
Purchasing is reactive, meaning you purchase something once the need for it is apparent. Procurement on the other hand is more proactive and strategic, collaborating with every department to identify appropriate needs in advance.
Rather than focusing on buying efficiently, purchasing is strictly transactional. The purchaser is responsible for executing the transaction. Procurement puts emphasis on establishing and maintaining long-term, valuable relationships with qualified suppliers and vendors.
Purchasing does not focus on identifying and mitigating risks, such as operational, financial, or data security risks. Whereas procurement seeks to identify any risks that can impact the business, then mitigate them by ensuring compliance among stakeholders.
Instead of focusing on the price of a certain good or service, procurement puts emphasis on the brand’s value. This makes sense since the process focuses on properly controlling spending. Purchasing always puts price before value.
Procurement involves purchasing something, but it occurs before purchasing. Procurement activities encompass identifying a need, satisfying it, and paying the bill. Purchasing occurs at the end of the procurement process when the need has already been satisfied.
When to use procurement over purchasing?
When deciding whether to use procurement services rather than purchasing services, several factors must be taken into account. Here are some key issues to consider:
- Timing: It may be better to purchase something if you need it immediately. Procurement takes longer because it includes more steps, such as requesting proposals, selecting vendors, and negotiating contracts.
- Quantity: Procurement may be a better choice if you need a large number of items, as you can get volume discounts.
- Customisation: It's often best to use procurement for solutions that need specific specifications, as you can work with the vendor to ensure they understand your needs.
- Price: the market conditions and specific deals will determine which approach offers the most value
- Relationship: It may make more sense to purchase from a vendor you have a good relationship with if you want to continue working with them rather than going through the procurement process with someone new.
Enhance your technology investments with the experts
A procurement strategy covers the entire process of supplying the goods and services necessary to meet your organisation’s demands, starting with receiving an order and ending with its fulfilment. Today’s businesses are facing increasing challenges with overspending, greater competition, and a rapidly changing technology landscape. The IT procurement specialists at Virtu can assist you in selecting the right IT suppliers, reducing costs, and improving efficiency, in order to stay ahead of the game and retain your competitive advantage.