What is Procurement v Purchasing
Summary
TLDRIn this insightful video, procurement expert Trent Morris explains the distinction between procurement and purchasing, using the analogy of buying a car. Procurement involves researching the market and identifying needs, akin to deciding on the type of car to buy. Purchasing then steps in to negotiate and secure the best deal, akin to the actual car purchase. Morris also discusses the relationship between the two functions, their roles within a business, and offers advice on entering the procurement field, highlighting its value and career prospects.
Takeaways
- 🔍 Procurement and purchasing are not interchangeable terms; procurement involves researching and understanding market needs and supplier capabilities before making a purchase.
- 🚗 The analogy of buying a car was used to differentiate the two: procurement is like researching the type of car you want, while purchasing is negotiating the deal and buying it.
- 🏢 Procurement often guides the purchasing process, with purchasing being a subset that follows the framework established by procurement.
- 💼 In smaller businesses, procurement and purchasing might be handled by the same person, but in larger organizations, they are typically separate functions.
- 📝 Procurement is responsible for setting up contracts, while purchasing officers execute the buying process based on those contracts.
- 🔑 Category management, sourcing, and supplier relationship management are three distinct parts of the procurement function, each with its own focus and responsibilities.
- 💡 Category management involves understanding what will be spent and how, sourcing is responsible for establishing the supply, and supplier relationship management ensures supplier performance.
- 🛍️ Direct spend refers to the product sold to the market, indirect spend includes everything else used to get the product to market, and IT and information services are often considered separate categories due to their complexity.
- 📊 The reporting structure for procurement can vary, with some organizations placing it under the Operations Director and others under the CFO, depending on the nature of the spend.
- 💼 Procurement can be a rewarding career for those interested in supply chain management, with opportunities to engage with suppliers and ensure value for money.
- 🚀 For those looking to enter the field of procurement, having relevant experience in areas like logistics can provide a solid foundation, and expressing interest to management can be a good first step.
Q & A
What is the primary difference between procurement and purchasing?
-Procurement involves the process of researching and understanding what is needed in the market, including the type of product, its features, and suppliers, without necessarily making the purchase. Purchasing, on the other hand, is the act of negotiating the deal and actually buying the product based on the information gathered during the procurement process.
Can the terms 'procurement' and 'purchasing' be used interchangeably?
-No, they cannot be used interchangeably as they refer to different stages in the process of acquiring goods or services. Procurement is the strategic phase of identifying needs and researching options, while purchasing is the execution phase where the actual buying takes place.
What is an example of how procurement and purchasing differ in a real-life scenario?
-An example given in the script is buying a new car. Procurement would be the initial research into the type of car needed, its features, and comparing different manufacturers. Purchasing would be the subsequent negotiation for the best price and terms with the chosen dealership.
What roles has Trent Morris held that make him an expert in procurement?
-Trent Morris has held various roles in operational positions involving purchasing and has worked in procurement roles for large companies like Beam Suntory and Coca-Cola Anatol, where he was responsible for group logistics.
How does procurement guide the purchasing process in an organization?
-Procurement sets up the contracts and defines the terms and conditions for the purchase. A purchasing manager or officer will not buy anything unless the contract has been established by the procurement team first, indicating that procurement guides and precedes the purchasing process.
In smaller businesses, can procurement and purchasing be the same function?
-In smaller businesses, procurement and purchasing might be combined into one function, often managed by a senior person such as a director, who decides on suppliers and negotiates terms, with an administrative person or purchasing officer executing the actual buying.
What is the relationship between procurement and the CFO in an organization?
-Procurement often reports to the CFO in many organizations because it involves managing the company's spending and ensuring value for money. However, the script suggests that procurement logically straddles operations and finance, needing to engage with all parties to govern spending effectively.
What is category management, and how does it differ from supplier relationship management?
-Category management is part of the procurement function that involves understanding what will be spent and how, and then handing off to a sourcing team to establish supply. Supplier relationship management, on the other hand, ensures that the supplier performs according to the company's requirements after the supply has been set up.
What are the three broad categories of spend typically managed by procurement?
-The three broad categories are direct spend, which includes products sold to the market; indirect spend, which covers everything else used to get the product to market; and IT and information services, which are often separated due to their complexity and the need for specialist knowledge.
How can someone get into a career in procurement?
-An easy way to get into procurement is to express interest to your management team and seek opportunities to transition from a related field where you have experience. For instance, Trent Morris transitioned from logistics into procurement after gaining over 15 years of experience in the former.
Why might procurement be considered a good career choice according to the script?
-Procurement can be a good career choice for those who enjoy supplier relationship management, engaging with people, and ensuring the company gets value for money. It offers a strategic role in the business with a focus on optimizing spending and supplier performance.
Outlines
🛍️ Understanding Procurement vs. Purchasing
The video script discusses the distinction between procurement and purchasing, using the analogy of buying a new car. Trent Morris, an expert in procurement with experience at Beam Suntory and Coca-Cola, explains that procurement involves researching the market, identifying needs, and selecting suppliers, which is akin to deciding what type of car to buy based on various factors. Purchasing, on the other hand, is the act of negotiating and finalizing the deal once the procurement process has determined what is needed and from whom. The script also touches on the potential overlap of these functions in smaller businesses and the importance of procurement in guiding the purchasing process.
📈 Procurement's Role in Business Structure and Career Opportunities
This paragraph delves into the reporting structure of procurement within a business, highlighting that it can vary from reporting to the Operations Director in businesses with significant direct spend to the CFO in other organizations. The speaker suggests that procurement should ideally engage with all parties to ensure value for money. The script also explores career opportunities in procurement, with the speaker recommending that interested individuals express their interest to their management team and consider entry points such as logistics or graduate programs. The analogy of buying a car is reiterated to summarize the difference between procurement and purchasing, with procurement being the market research phase and purchasing being the actual purchase negotiation and execution.
Mindmap
Keywords
💡Procurement
💡Purchasing
💡Trent Morris
💡Category Management
💡Supplier Relationship Management (SRM)
💡Direct Spend
💡Indirect Spend
💡Operational Roles
💡Strategic Sourcing
💡CFO
💡Career in Procurement
Highlights
The difference between procurement and purchasing is discussed in the context of buying a new car.
Procurement is likened to the research phase before buying a car, considering needs and options.
Purchasing is compared to the actual negotiation and buying process after the research is done.
Trent Morris, an expert in procurement, shares his experience from roles in operational purchasing and strategic procurement.
Procurement involves understanding the market, suppliers, and products available, aligning them with company needs.
Purchasing focuses on securing the best deal and service once the procurement process has identified what is needed.
In smaller businesses, procurement and purchasing might be combined, but in larger organizations, they are distinct functions.
Purchasing is typically a subset of procurement, with procurement guiding the purchasing process.
Procurement sets up contracts, and purchasing officers execute those contracts to make purchases.
Category management, sourcing, and supplier relationship management are three distinct parts of procurement.
Category management involves understanding spending and how to allocate it effectively.
Sourcing teams are responsible for establishing the supply agreements with vendors.
Supplier relationship management ensures suppliers meet the performance requirements set by the company.
Direct spend refers to the cost of products sold to the market, while indirect spend covers everything else used to get the product to market.
IT and information services are often considered a separate category due to their complexity and need for specialist knowledge.
Procurement's reporting structure can vary, sometimes being under Operations Directors or CFOs, depending on the company's needs.
Procurement is a strategic function that should engage with all parties to ensure value for money.
Trent Morris suggests that procurement is a rewarding career, especially for those interested in supplier relationship management.
Getting into procurement often starts with expressing interest and leveraging relevant experience in related fields like logistics.
For those starting fresh, entry into procurement could be through junior roles or graduate programs.
Transcripts
okay a very common question that I get
on our YouTube channel and on our
various blogs is what's the difference
between procurement and purchasing we're
going to be hearing that from trend
coming right up
[Music]
okay so what is the difference between
procurement and purchasing is there a
difference can we use the terms
interchangeably today we're talking to
Trent Morris now Trent is a bit of an
expert in procurement unfortunately I
guess you better tell us why what makes
you an expert where have you worked sure
yeah so I've had a few different roles
where I've looked at both procurement
and purchasing so when in operational
type roles I've been involved in
purchasing and then more recently I've
actually had a few roles and some
enemies sure sure so so you know
operational role actually worked for
beam Suntory the most people would know
of as Jim Beam the burbot which is one
of the favorite jobs I've ever had and
more recently I worked for coca-cola
Anatol in their procurement team looking
after group logistics okay so you've had
a bit of experience with some big roles
there so let's get back to the question
what is the difference between
procurement and purchasing sure so I
think the easiest way Rob to explain the
difference between procurement and
purchasing is to consider for example
buying a new car if you're gonna buy a
new car you actually just abla SHhhh
what you want before you even take a
step onto the street and so you'd
consider the number of seats you need in
the vehicle whether it need to be a full
drive a sedan an SUV and then you would
actually start looking at all the
manufacturers and what the manufacturers
had to often once you'd actually done
that at that point you would move into
getting prices on the vehicles the first
part were you doing the research into
the industry that's procurement yeah
that's understanding how much you want
to spend the type of car you want how
many seats the needs etc okay so it's
really looking at what's available on
the market the different suppliers what
their different products are like
whether it matches your needs and so on
yeah but it's not actually buying it
exactly right exactly right so you need
to know what you actually want and then
once you know what you want you can go
out and find what you want for the right
price now not just the price but
sometimes it's the service capability of
the dealership you're talking to it
could be the aftermarket surface or the
warranties that you're actually after
but all of those things become
purchasing as compared to procurement
okay so there's a question coming up
here I know are these always separate
functions procurement and purchasing I
guess in smaller business
they might be the same typically I would
suggest that purchasing is is a subset
of procurement occur in as much as
procurement guides the purchasing
process a purchasing manager opposite
purchasing officer typically won't buy
off anything unless the contract has
been set up by procurement first so in
that way yes procurement and purchasing
are linked
sometimes they are decentralized in as
much as an Operations team may look
after purchasing if they're talking
about widgets or something like that but
if you're talking about something that's
more indirect something like travel that
might all be governed by a centralized
body okay and in a smaller business is
if there's only sort of small business
owners watching this usually it's going
to be a senior person that the director
will be saying hey we're going to buy
our widgets from this supplier and and
negotiate the supply and the prices and
so on and then an admin person or
someone in purchasing actually does the
buying exactly right Rob so the
procurement typically has the authority
on behalf of the business to engage with
suppliers to actually make deals the
person who is executing those deals is
the purchasing and typically would be a
more junior resource to the business
okay so other terms that come up and
there may be some confusion around these
category management what's that and what
supplier relationship management are
they the same thing
sure no they're not so if you have a
look at procurement as a function of the
business typically it will look after
three separate parts of the business and
those three parts would broadly be
broken into category management and then
it is the understanding of what you're
going to spend and how you're going to
spend it then a category manager would
hand off to a sourcing team and the
sourcing team would actually go out and
set up the the supply in the first place
and then they would hand off to a
supplier relationship management team
who'll make sure that the supplier is
performing in accordance with the
requirements of the house all the dumb
questions yes so what's a category is
that indirect spend versus direct spend
or is it like travel fuel that sort of
stuff look in my experience typically
there are three types of category at a
very senior level so you have directs
and that is the product that actually is
sold to the market so in the FMCG space
it could be the ingredients to the
liquids the tins the bottles anything
that touches the product
indirect is is every
thing else that is used to get the
product to market either is it from a
supply perspective or a demand
perspective and then finally the third
one which is quite often separated out
would be IT and now the information
services because that is a very complex
environment within its own and requires
specialist knowledge okay now a question
I've often been asked and sometimes I
upset people with the answer is where
should procurement report to within a
business structure that's that's a great
question and and and I've encountered
two separate areas I am doing some work
with a customer at the moment who I'm
working with the Operations Director
because the vast majority of their spend
is in the direct space yeah and he wants
to govern that he wants to understand
the requirements around the capital
employed etc on the other hand in a lot
of organizations it actually belongs to
the CFO okay I think the best way to
think of it would logically straddle
those two teams so who it reports to is
perhaps less important accept the fact
that procurement is required to engage
with all parties to ensure that the
money is being spent well and the
business is actually getting the value
for money that wants okay its
procurement a good career because there
might be people watching this or thing
and they're getting into procurement
what would be a good way to get into it
so far I found for Killman a great role
to being I've had a number of roles
within supply chain and I must admit
procurement is one of my favorites for
me personally I really enjoy the
supplier relationship management side of
procurement thing how to engage with
people and help to get the best out of
them so that we know that we're getting
value for money I really enjoy that part
of it typically an easy way into
procurement is simply to stick your hand
up and say yes I'm interested in
procurement to them to your management
team but understand that you'll want to
go in at a point that you have
experience in so for me my entry point
into procurement was through logistics I
had over 15 years experience in
logistics when I got into procurement
and so it was a nice easy transition for
me I think any other way you'd want to
be starting in a more junior level and
coming into it maybe a graduate program
or something like sounds good so I think
we've answered the question what's the
difference between procurement and
purchasing and in a nutshell your
analogy of going to buy a car
procurement is kind of looking at the
market all the different brands and
their features and which
brains you might want to buy and then
purchasing is actually going out and
negotiating the deal and buying the
product absolutely perfect thanks for
that friend so there we go another topic
and you should realize by now that we
have new videos coming out on a
Wednesday so if you're not subscribed do
hit the subscribe button down below if
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email every time we post a new video and
do comment below if you've got any
questions I'll make sure that trains or
I answer those thank you for watching
and we'll see you next week
[Music]
you
[Music]
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