Procurement vs Purchasing | Difference between Procurement and purchasing

Educationleaves

5 May 202102:48

Summary

TLDRThis video discusses the difference between procurement and purchasing, terms often used interchangeably. Procurement is a strategic, proactive process involving identifying, selecting, and acquiring goods or services to meet a company’s needs. It emphasizes value and long-term relationships with suppliers. In contrast, purchasing is a reactive subset of procurement focused on efficient transactions, including ordering, expediting, and payment, with an emphasis on cost over value. The video highlights how procurement is broader, covering the entire supply chain process, while purchasing is limited to executing specific orders.

Takeaways

🔍 Procurement involves identifying, shortlisting, selecting, and acquiring goods or services from a third-party vendor.
🛒 Purchasing refers to the functions associated with acquiring the goods and services that an organization requires.
📊 Procurement is a broader, strategic, and proactive process, while purchasing is a smaller subset and more reactive.
💼 The goal of procurement is to fulfill the company's needs by acquiring necessary goods and services.
💸 Purchasing focuses on company expenditures, arranging for the purchase of goods and services.
🎯 Procurement prioritizes the value of goods and services, while purchasing is more focused on price.
📝 Procurement covers end-to-end activities, including need recognition, sourcing, contract closure, and record-keeping.
📦 Purchasing tasks mainly involve ordering, expediting, and payment processing.
🤝 Procurement aims to build long-term, win-win relationships with suppliers.
💻 Purchasing focuses on efficient transactions and does not prioritize vendor relationship development.

Q & A

What is procurement?
-Procurement refers to the process of identifying, shortlisting, selecting, and acquiring suitable goods or services from a third-party vendor, often through direct purchase, competitive bidding, or a tendering process. It also ensures timely delivery of the right quality and quantity of goods or services.
How is purchasing different from procurement?
-Purchasing is a small subset of the broader procurement process. While procurement involves identifying the company's needs and ensuring timely acquisition, purchasing focuses on acquiring goods or services and is more concerned with price than value. Purchasing is a reactive process, whereas procurement is strategic and proactive.
What are the key activities involved in procurement?
-Procurement involves a range of activities, including need recognition, sourcing, contract closure, and record-keeping. It is an end-to-end process ensuring all necessary goods and services are acquired efficiently.
What is the main focus of purchasing?
-The main focus of purchasing is to acquire the goods and services required by the organization, primarily focusing on price and making efficient transactions rather than developing long-term relationships with vendors.
How does procurement add value beyond purchasing?
-Procurement adds value by focusing on the overall value of goods or services rather than just their price. It also involves strategic planning, vendor relationship management, and ensuring that acquisitions meet the company’s needs long-term.
What are the key tasks involved in purchasing?
-The key tasks involved in purchasing include ordering goods or services, expediting the delivery process, receiving the goods or services, and handling payment.
What is the end goal of procurement?
-The end goal of procurement is to identify and fulfill the needs of the company in a way that is both strategic and proactive, ensuring value and long-term success.
What is the end goal of purchasing?
-The end goal of purchasing is to arrange company expenditures and acquire the goods and services needed for the organization in a way that is efficient and cost-effective.
How do procurement and purchasing differ in terms of supplier relationships?
-Procurement focuses on building long-term, win-win relationships with suppliers, ensuring both sides benefit from a strong, strategic partnership. In contrast, purchasing is more concerned with efficient transactions and is less focused on developing deep vendor relationships.
What role does procurement play in an organization's strategy?
-Procurement plays a strategic role by ensuring that the organization gets the best value for its money, developing relationships with suppliers, and ensuring that the company’s needs are met both in the short and long term. It is more about value than cost.

Outlines

00:00

👋 Introduction to Procurement vs Purchasing

The video begins with a welcome message, introducing the main topic of discussion: the difference between procurement and purchasing. It highlights how these terms are often used interchangeably, but in reality, they hold distinct meanings. While a layman may see no difference between the two, a manager would be able to explain the significant distinctions.

🛒 What is Procurement?

Procurement is described as a comprehensive process involving the identification, selection, and acquisition of goods or services from third-party vendors. This process can involve direct purchases, competitive bidding, or tendering. Key goals include ensuring the timely delivery of goods or services with the right quality and quantity.

🛍️ What is Purchasing?

Purchasing is explained as a specific subset of the broader procurement function. It is a series of tasks related to acquiring goods and services, which includes activities such as ordering, expediting, receiving, and fulfilling payment. Purchasing focuses more narrowly on the transaction aspect.

🔍 Key Differences Between Procurement and Purchasing

The differences between procurement and purchasing are discussed in detail. Procurement is seen as a strategic and proactive process focused on identifying and fulfilling company needs, with an emphasis on value over price. In contrast, purchasing is more reactive, concerned with arranging expenditures and acquiring goods and services, with a focus on price rather than value.

🔑 Procurement's Role in End-to-End Processes

This paragraph highlights how procurement is involved in end-to-end activities for acquiring goods and services, from need recognition to sourcing, contract closure, and record keeping. Purchasing, on the other hand, is concerned with specific tasks like ordering, expediting, and payment.

🤝 Supplier Relationships in Procurement vs Purchasing

The focus on supplier relationships differs between procurement and purchasing. Procurement emphasizes building long-term, win-win relationships with suppliers. Purchasing, however, is more transactional and less focused on nurturing vendor relations.

📄 Conclusion and Further Resources

The video ends with an invitation to read more or download a PDF through the link in the description. The speaker encourages viewers to like, share the video, and subscribe to the channel.

Mindmap

Keywords

💡Procurement

Procurement is defined as the process of identifying, shortlisting, selecting, and acquiring goods or services from a third-party vendor through direct purchase, competitive bidding, or tendering. In the video, procurement is described as a strategic and proactive process focused on fulfilling a company's needs with the right quality and quantity of goods, ensuring long-term value and supplier relationships.

💡Purchasing

Purchasing refers to the functions associated with acquiring goods and services required by an organization. It is a smaller subset of procurement that involves activities like ordering, expediting, and making payments. In the video, purchasing is portrayed as a reactive process primarily focused on efficient transactions and price considerations rather than long-term value or supplier relations.

💡Third-party Vendor

A third-party vendor is an external supplier from which a company acquires goods or services. In the procurement process, selecting a third-party vendor is crucial to ensure the timely delivery of the required goods or services. In the video, the role of third-party vendors is discussed in the context of procurement strategies like competitive bidding or tendering.

💡Competitive Bidding

Competitive bidding is a process where multiple vendors are invited to submit proposals or bids to provide goods or services. The goal is to get the best value in terms of price and quality. In the video, this method is described as one way of acquiring goods or services during procurement to ensure fairness and cost-effectiveness.

💡Tendering

Tendering is a formal process used by companies to invite suppliers to bid for the supply of goods or services. This process ensures transparency and competition. The video mentions tendering as part of procurement, particularly when securing high-quality and cost-effective goods from external vendors.

💡Reactive Process

A reactive process is one that occurs in response to an immediate need or problem. In the video, purchasing is described as a reactive process because it involves responding to the company's existing needs by arranging for goods and services rather than planning strategically, as in procurement.

💡Strategic Process

A strategic process is a planned and long-term approach to achieving organizational goals. Procurement is referred to as a strategic process in the video because it involves careful planning, supplier relationship management, and ensuring long-term value from acquired goods and services.

💡Supplier Relationship

Supplier relationships refer to the connections and collaborations between a company and its suppliers. In procurement, maintaining a strong, win-win relationship with suppliers is emphasized as key to ensuring reliable and consistent access to necessary goods and services. The video contrasts this with purchasing, which focuses less on these relationships.

💡Expediting

Expediting is the process of ensuring that the delivery of goods or services happens on time, without delays. In the context of purchasing, expediting is one of the tasks involved, which ensures that the ordered goods are received as scheduled. The video mentions expediting as part of the operational activities handled under purchasing.

💡End-to-end Activities

End-to-end activities refer to the entire process involved in fulfilling a task from start to finish. In the video, procurement is described as handling end-to-end activities, from recognizing the need for goods and services, sourcing vendors, to closing contracts and keeping records, ensuring that the entire acquisition process is managed.

Highlights

Procurement and purchasing are often used interchangeably but have distinct differences.

Procurement is a strategic process, involving identifying, selecting, and acquiring goods or services from third-party vendors.

Purchasing is a smaller subset of procurement, focusing on functions like ordering, expediting, receiving, and payment.

Procurement ensures timely delivery of the right quality and quantity through various methods, including direct purchases and competitive bidding.

Purchasing is a reactive process, primarily concerned with fulfilling immediate company needs.

The end goal of procurement is to address the company’s needs proactively, while purchasing focuses on arranging company expenditures.

Procurement prioritizes an item's value and long-term benefits over its cost.

Purchasing is more focused on the price of goods and services rather than their long-term value.

Procurement covers the end-to-end activities, from need recognition to sourcing, contract closure, and record keeping.

Purchasing comes into play when it’s time to physically acquire goods or services, emphasizing order placement and payment.

Procurement seeks to build long-term, win-win relationships with suppliers.

In contrast, purchasing focuses on efficient transactions and is less concerned with vendor relationships.

Procurement is considered a proactive process aimed at future planning and fulfillment.

Purchasing is seen as a reactive process that responds to immediate organizational needs.

Viewers are encouraged to read the full details or download a PDF via the link provided in the video description.