Purchasing and Procurement - YouTube

Hi everyone.

In this video let us try to differentiate between purchasing and procurement.

The terms Procurement and purchasing are often used interchangeably.

But here we are trying to distinguish between these 2.

First let's discuss Purchasing Purchasing can be defined as : Acquiring goods

for satisfying infernal needs.

In some organizations, this duty is carried out by individuals or teams.

But in some organizations there is separate purchasing department that takes care of purchasing

activities.

We have discussed the basic objective of purchasing in the five rights of procurement video.

Please refer to the link provided below if you are interested to know in detail.

The basic objective of purchasing is to acquire materials of right quality in the right quantity

delivered to the right place at the right time for at the right price.

The basic purchasing process may include: * receiving purchasing requisition from user

departments * obtaining quotations from suppliers and

evaluating them * placing purchase order

* receiving material and making payment

The term P2P cycle or purchase to pay cycle is often used to describe purchasing process.

That is: placing purchase orders, expediting, receipt and payment.

The role of purchasing has evolved over time and Purchasing is not just "buying inputs

at best price"; it also includes process of ensuring reliable and consistent flow of goods,

from market to various departments of the organization.

Purchasing department can be seen as the interface between internal user and external supply

market.

Now let’s look at Procurement:

Procurement can be seen as the process of identifying rights needs by working with various

internal departments, conducting efficient Purchasing and managing suppliers.

A process that contributes to competitive advantage of the organization

Procurement also makes use of activities like hiring or leasing

In simple terms Procurement can be defined as, the process of meeting internal needs

efficiently, through purchasing or hiring or leasing or outsourcing, (etc)

The procurement process may include:

* supply market monitoring, identifying potential supplier, preparing approved supplier list

* working with user departments in identifying right needs

* converting the needs into clear accurate specifications that can be understood by suppliers

* obtaining and evaluating quotations * selecting the right supplier

* Efficient negotiation * contract development

* contract management * Payment

* Supplier relationship management

We can see that, Procurement is an umbrella term, within which purchasing can be found.

Which means procurement is a wider term than purchasing.

Procurement is a broader process than purchasing.

Procurement includes few activities prior to & few activities after, the actual purchasing.

* identification of right need, Preparing clear specification , surveying market etc

are some of the activities prior to actual purchasing.

* supplier management , contract reviews etc are some of the activities after actual purchase

Purchasing is more like reacting to the internal needs.

Whereas procurement is a proactive approach.

Because it includes working with user departments in identifying right needs.

Procurement professionals can contribute at the product design stage by utilizing the

market knowledge about what new products are available in the market, what innovative strategies

are in use etc..

So it is more proactive in nature.

Purchasing does not deal with supplier relationships.

It is more transactional in nature.

Whereas procurement includes supplier management.

Establishing and maintaining fruitful long term relationships with suitable suppliers.

So it is more relational in nature.

Purchasing has short term goals compared to procurement.

Basically the 5 rights.

Procurement has a long term approach.

It deals with activities that try to contribute towards the competitive advantage & organizational

objectives.

It is more strategic or long term in nature.

So from the above discussions we can say, compared to purchasing, procurement is a wider

term & a broader process.

It is more proactive, relational and strategic than purchasing.

Thank you for watching.

Hope it was useful.

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Take care.