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2019-06-13 06:49:19

Procurement and Purchasing

Hi all,
Can we have a clear explanation for the differences between the terms of Procurement and Purchasing, and also the right position of the Supply Chain, is it a part of the Procurement Cycle or not?

Eng. A.A.N
 •  Fire and Emergency NZ  •   2019-06-14 06:59:15
Good evening Abdullah - I'll contribute an observation on the first one. Perhaps others who have been doing contract management and procurement for longer than me might have a different view, or say it more eloquently, but here goes....

Purchasing is a subset of procurement. It is the giving effect to a lot of the procurement work that you've done earlier (i.e. establishing what you want, identifying suppliers etc).

That said, I think that you can purchase without doing procurement, and in fact, I'd go so far as to say that you can even get the same outcome.

However, only by procurement can you demonstrate that you've got the right outcome. If you only purchase, and don't understand your needs, identify the market and consider the offerings against your needs, you can't demonstrate that you've got the best outcome for the business.

And this is where I think we as a group can demonstrate our worth to the business. We can show with procurement the outcomes that we've avoided (goods not matching requirements, getting better pricing outcomes, repetitional damage etc) by running a fair and robust process ensures that the business is better off.

On many occasions I've seen my team has moved someone from their initial fixed ideas into better outcomes by taking the time to show them what's possible and what good looks like. Do that enough times, and you have more and more allies in the business to encourage others to use your services.


 •  World Commerce & Contracting  •   2019-06-14 17:41:27
Hi, Abdullah,

Check out this article in the IACCM Library, 'Procurement' and 'Purchasing' Are Different:
 •   2019-06-14 17:45:20
Having looked at this topic, there is actually already a lot written on the question of the difference between purchasing and procurement. As they observe, for the typical person they are probably the same, but apparently 'the experts' in procurement know the difference! Though once you start reading, there is plenty of contradiction...

When it comes to Supply Management, it is yet another variant and clear as mud whether it is actually different from Procurement. Supply Chain Management is certainly a more holistic activity of which procurement is part, but that's about all you can really deduce.

The net is, these terms are used with a high degree of variability and tend to mean whatever anyone wants them to mean; the only common factor is that they are all associated with the act of buying!

Tim Cummins
 •  Ginkgo Management Consulting  •   2019-06-24 04:21:43
Hi Abdullah

Years ago Procurement and Purchasing were often used interchangeability. These days they have very different meanings. Procurement refers to the end-to-end activities from strategic category management, through to the operational analytics of spend and performance, to the tactical buying and sourcing activities which can happen in-house or in shared services.

As the Procurement function has 'grown up'it has become far more strategic, so although the term Procurement refers to all the activities conducted by the function, it also implies more strategic perspectives. The scope is also overlapping with other related functions like Finance (Accounts Payable as part of the purchase to pay process) and supply chain (Supply Planning, product innovation and supplier performance management). The increasing focus on digital in Procurement is also seeing more collaboration with other functions for example, RPA (Robotic Process Automation) and machine learning, process automation and contract management, and predictive analytics.

Purchasing is clearly the administrative activity of raising a purchase order, managing the goods/service receipt notice and approving to pay. More advanced companies use on-line catalogues to support this along with automated workflow routing and defined delegations of authority. Put simply, Purchasing includes the tactical purchase and approval activities to support buying.

When we speak about supply chain today, we tend to talk about a value chain. Some organizations are now including supply chain and Procurement in one organization given the overlaps, but predominantly they continue to be separate, but related functions.

Supply chain will include demand planning and forecasting, distribution planning, warehousing and logistics, manufacturing (which may also be a separate function), supply planning and often new product development.

Where Procurement gets involved most is in supply planning and supplier performance management, for instance, using contracts to enforce performance, and collaborating with supply chain and marketing for product and service innovation by tracking supply markets and innovations.

Conceptually, the Procurement function has shifted from managing costs to providing value. Using advanced analytics of COGS and SG&A data, digital tools and advanced supplier market research, the function is working far more collaboratively with other functions. As business cadence increases, functions are becoming more linked and lines between which function does what is blurring.

Hope this helps.
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