Procurement vs. Purchasing—What’s the Difference? SUPPLY CHAIN & LOGISTICS

Summary

This video explains the critical roles of procurement and purchasing in supply chain management, highlighting their differences and impact on business success. Procurement is a strategic process involving supplier selection, negotiation, and risk management, while purchasing focuses on the transactional side of placing orders and managing payments. Through case studies of companies like Walmart, Apple, and Tesla, the video shows how effective procurement leads to cost savings, risk mitigation, innovation, and competitive advantage. It also offers career insights and tips for breaking into the field of procurement and supply chain management.

Takeaways

• 😀 Procurement is a strategic process involving sourcing, negotiating, and acquiring goods and services, focusing on long-term supplier relationships and cost management.
• 😀 Purchasing is a transactional activity that deals with placing orders, managing invoices, and ensuring correct payments for goods and services.
• 😀 Procurement looks at the 'why' and 'how' of supply chain management, while purchasing focuses on the 'what' and 'when'.
• 😀 Procurement is about managing value through cost, quality, and sustainability, whereas purchasing prioritizes the lowest cost for immediate orders.
• 😀 Effective procurement can save businesses millions by reducing costs, streamlining operations, and improving supplier relationships.
• 😀 Companies like Walmart use procurement to negotiate bulk purchases and reduce operational costs, allowing them to offer lower prices to consumers.
• 😀 Risk management in procurement is crucial to mitigate vulnerabilities, as seen in Apple's strategy of sourcing from over 200 suppliers across 43 countries to ensure product availability during disruptions.
• 😀 Innovation and competitive advantage can be driven through procurement, with companies like Tesla co-developing advanced technology with suppliers to maintain industry leadership.
• 😀 Procurement skills are in high demand across industries such as retail, healthcare, technology, and manufacturing, offering high-paying career opportunities.
• 😀 To succeed in procurement, professionals should build knowledge through courses, network with industry experts, and optimize their resumes with key skills like strategic sourcing and negotiation.
• 😀 Procurement decisions affect consumers' daily lives by influencing product pricing, availability, and sustainability practices, such as Nike’s commitment to using renewable energy in its supply chain.

Q & A

What is the main focus of the video?

The video explains the importance of procurement and purchasing in supply chain management, their distinctions, and why they are critical for business success. It also provides career insights and highlights the company's Supply Chain Mastery Program.

What is procurement, and how does it differ from purchasing?

Procurement is the strategic process of identifying, sourcing, negotiating, and acquiring goods and services necessary for a company's operations. It involves supplier relationships, cost management, quality assurance, and risk mitigation. Purchasing, on the other hand, is more transactional, focusing on the execution of orders and payments.

What are some key components of procurement?

Key components of procurement include need identification, supplier selection and sourcing, negotiating and contracting, supplier relationship management (SRM), risk management, and ensuring sustainability and compliance.

Why do procurement teams focus on risk management?

Procurement teams focus on risk management to reduce vulnerabilities related to supplier reliability, geopolitical factors, market fluctuations, and other disruptions that can affect the supply chain. This helps ensure consistent delivery and quality.

Can you give an example of procurement in action?

For example, a global automobile company selects suppliers based on cost, quality, and risk factors, negotiates favorable terms, and secures long-term agreements to ensure reliable delivery of materials like steel and electronic components.

How does procurement contribute to cost savings for businesses?

Procurement helps businesses save money by negotiating favorable contracts, sourcing in bulk, and optimizing purchasing strategies. For example, Walmart uses procurement to consolidate purchases, forecast demand, and streamline operations to pass savings to customers.

What is the importance of supplier diversification in procurement?

Supplier diversification is crucial in procurement to minimize the risks of supply chain disruptions. By sourcing from multiple suppliers and countries, companies can ensure continuity in production even when one supplier faces issues.

How do procurement teams drive innovation within a company?

Procurement teams drive innovation by working closely with suppliers to co-develop new products, improve quality, and shorten development cycles. For instance, Tesla collaborates with suppliers to develop advanced battery technology, which gives them a competitive advantage.

Why are procurement and purchasing important for consumers?

Procurement and purchasing directly impact product availability and pricing. Well-executed procurement ensures that products are affordable and consistently available, while poor procurement can lead to supply shortages and inflated prices, as seen with products like PlayStation 5.

How do sustainability and ethical sourcing relate to procurement?

Procurement plays a key role in ensuring that companies source materials ethically and sustainably. Many companies, like Nike, are focusing on renewable energy and sustainable materials, which meet the growing demand for eco-friendly products among consumers.