Procurement vs. Purchasing – Ultimate Guide to Automate your Procurement Process

procurement vs purchase

Procurement vs Purchasing 

The key difference between procurement and purchasing is that the process of purchasing majorly focuses on costs and payment. Purchasing is a subset of procurement.  On the other hand, procurement is an umbrella term that encompasses the overall process of procuring goods and services when demand arises. It also covers the management of vendors, risks, contract management, supply chain management, etc.

Let us explore procurement vs. purchasing a little bit more here.

Table of Contents

What is Procurement? 

Procurement is the process through which organizations source required goods and services from external factors like suppliers, manufacturers, and third-party vendors. Procurement encompasses all the activities that are involved when an organization begins to buy and make necessary decisions during the condition of scarcity. 

Procurement includes phases like identifying the needs, sourcing, negotiating, purchasing, receiving, and inspecting goods, invoice generation and payment, and the management of suppliers. All these are carried out by simultaneously ensuring cost savings, time reduction, and also building beneficial supplier relationships. 

Steps in the Procurement Process

Step 1 – Surveying the market

Step 2 – Identifying potential suppliers

Step 3 – Creating an approved supplier list

Step 4 – Determining the internal needs

Step 5 – Initiating the purchase request

Step 6 – Obtaining and assessing vendor quotes

Step 7 – Choosing the supplier management and negotiating

Step 8 – Receiving the ordered goods and checking the quality

Step 9 – Invoice generation and payment

Step 10 – Documentation and record-keeping

What is Purchasing?

On the other hand, purchasing is a subset of the procurement process. The purchasing function encompasses the part where the actual buying happens. The activities that are part of the purchasing function are ordering, expediting, receiving, and the payment of the order. 

Purchasing is more than just looking for budget-friendly goods and services. It also takes care of the sought-after products’ customer service, their warranties, payment terms, etc.

The Key Procurement Activities 

  • Needs Analysis 

This activity is carried out to understand and determine the internal needs of the business. This is done to identify any issues within the processes. This analysis is essential in cases where two departments need the same tool or service. 

  • Due Diligence 

Sourcing suppliers also include carrying out the due diligence. Due diligence is the research done on the sourced suppliers’ business culture, code of ethics, customer history, etc. The process also includes the analysis of the market and the competitors. 

  • Contract Negotiation 

Contracts and contract management bind the business and its suppliers/vendors legally. The contract is a document that outlines the terms and conditions of the partnership each party has agreed to.

  • Strategic Sourcing

Strategic sourcing involves sourcing goods and services in bulk or with other products that will reduce the cost of purchasing compared to individual products. 

  • Supplier Relationship Management

The suppliers and vendors have to be managed routinely. This has to be done by giving them the order information, tracking deliveries, supply chain management, and paying the receipts for the goods. Additionally, successful inventory management can be carried out as well. 

  • Spend Data and Analysis

This activity is where the key metrics are devised for analyzing the different aspects of the procurement process and the suppliers. By analyzing the process, inefficiencies, and areas for improvement can be identified.

Steps in the Purchasing Process 

As a process within procurement, purchasing has limited steps and also has to be regulated for every new vendor that the business collaborates with. The key steps involved in the purchasing process are – 

  1. Receiving purchase requisition
  2. Sending an advance shipping notice
  3. Collecting, sourcing, and evaluating the vendor quotes
  4. Generating receipts of the goods/services 
  5. Invoice approval process
  6. Accounts payable process for sending the payment to the supplier
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Importance of Procurement and its Management

With the ability to create an impact on the business’s profit. If the businesses have to have a good profit, control has to be exercised on the cost that is spent. Hence,  procurement management is important to any organization. The standard rule is that the procured cost must be less than the cost that it sells for, minus the operational or processing costs. 

This is why building a good procurement strategy is important. Having the best procurement practices in place guards businesses from uninformed decisions, and gets goods and services at the best prices possible. Here are some reasons why procurement management is important. 

Reduces Operating Costs

Having a perfectly planned procurement management system helps in the effective control of a business’s operating costs. A procurement strategy enhances the ability to plan spending according to the allotted budget. Due to this, businesses can have significant savings every year. In 2021, it has been estimated that about 8% of savings have been incurred by the procurement department for their organization. 

Improves Negotiating Outcomes

Contract management and negotiations are essential parts of the procurement process. These are also the main junctures where savings can be planned and executed. Perfectly negotiated contracts using procurement strategies offer significant savings to the business. With the right purchase and payment terms both parties will mutually benefit. Moreover, businesses also study supplier performance to make the right judgment. Long-term contracts at minimum prices are welcomed by suppliers/vendors.  

Aids Strategic Sourcing

Suppliers are an important aspect of your procurement function and the sourcing must be done meticulously. Strategic sourcing also involves bundling, limiting the purchase for the entire organization to a limited number of suppliers/vendors. This will significantly reduce the number of compliance checks and their paperwork. Therefore, sourcing the right supplier or vendor impacts the process. 

Reduces Risk

Good procurement management makes the process error-proof and builds controls around it. The major risks associated with procurement such as security breaches and fraud can create overboard expenses. Survey shows that the costs of ransomware and data breach incidents in 2020 by respondents summed to $42 billion. These issues can have a significant impact on small businesses.  

Enables Effective Due Diligence

Due diligence is like a primary shield against any harmful effects on procurement. Every business must conduct due diligence, ensuring that all the risk factors are being evaluated before establishing a contract with any supplier. Suppliers must be assessed for any potential risks.

Purchasing as a Part of the Procurement Process 

Procurement and purchasing are two different yet complementary to each other. The part of the procurement that buys and pays for the goods and services in purchasing. During purchasing, the purchase order (PO) is created, followed by its transmittal, invoice generation, and final payment. Procurement purchasing is a cross-functional process, hence, it is important to have a standardized process for purchasing. 

A poor purchasing process creates gaps for cash leaks, unbound expenses, and other risks such as accidental orders. This put the business’s reputation and image in jeopardy.

Purchasing vs Procurement – Key Differences Between Procurement and Purchasing

Some essential parameters or aspects effectively differentiate purchasing from procurement.  Explore procurement vs. purchasing with this comparison table. 

 Procurement Purchase
Goals
  • The procurement process’s goal is to fulfill the business’s specific needs
  • Procurement is a process that goes beyond simple buying and selling
  • Procurement involves every aspect of buying such as cost, location, vendor, etc.
  • Purchasing is specific to buying and paying
  • Purchasing has only short-term goals. It aims at getting the right price, quality, quantity, place, etc.
  • Its purpose is to devise business and purchase specific resources
Proactive vs Reactive
  • Procurement is a proactive approach, working with every department to identify its needs
  • Purchasing is reactive to internal needs. 
Vendor Relationship Management
  • Procurement is a relational process. It depends on good and strong vendor relationships
  • The purchasing process is transactional and does not focus on building relationships
Pricing and Value
  • Procurement lays emphasis on the value of the goods or services
  • Purchasing on the other hand emphasizes the pricing over the value of the goods or services
Order of Operations
  • The process of procurement comes first, even though it involves purchasing 
  • The scope of the process extends from identifying the need to the payment of the invoice
  • The process of purchasing happens only toward the end of the complete process.
  • The scope of the process is only during the actual purchase and payment
Focal Point
  • The focal point is finding and fulfilling the needs as soon as possible and it is more than spending money
  • The focal point of purchasing is limited to ordering, receiving, and payment

Why the Distinction between Procurement and Purchasing is Crucial?

Understanding the difference between procurement and purchasing is essential to know how it contributes to the business. It also helps in understanding what kind of strategies must be devised to enhance them. 

Firstly, the procurement process contributes to having a competitive edge over the business’s competitors. A good and strategized procurement process gives the best value and lowest price through healthy negotiation. This helps the business to produce more at lesser spending costs. 

 Secondly, since the business’s income completely depends on the profit margin, procurement is the process that gravely affects it if not managed properly. If procurement has a direct impact on a business’s revenue, strategic procurement is important. This is why procurement is related to corporate strategy. 

Thirdly, procurement also demands the suppliers and vendors align with the business’s principles and ethics. This is how supplier or vendor relationships are stabilized and made beneficial. 

Purchasing, on the other hand, is crucial to business as well. This process ensures that the right quality and quantity are delivered to the respective requester on time. It also ensures that the payments are met on time and do not go overdue.

Improving Procurement and Purchasing Processes

Procurement, especially for enterprises, can be a complex process to handle. Therefore, having effective control over procurement activities is highly essential. So, how to do this? A dedicated procurement team can devise and employ the right approach for efficient spending. These simple principles can create a significant change in operating costs and risks. 

Easiest Ways to Implement Procurement Controls in Enterprises 

Evaluate current spending practices across the business

This evaluation must be carried out across different departments and geographies to determine the operating spending. These expenses could include office supplies, software, hardware, other equipment, cleaning supplies, etc. 

Look for opportunities for cost savings

Cost savings can be achieved especially when two departments need the same goods or services, the item can be bought in bulk values or shared between required departments. 

Create controls around future purchasing

To achieve this, a purchasing framework or criteria can be set that will tell what kind of purchases can be made, from which vendor, and the budget. This way, the purchase processes can be centralized where no overboard expenses are made. Tools like vendor management systems can also be leveraged to make the process more efficient. 

Establish a system for approval and reimbursement

Using a workflow automation platform can enhance and aid in managing approvals and reimbursements. A platform like Cflow streamlines tasks and has features for bulk approvals. Moreover, it improves transparency and accountability. 

Implement a vendor selection policy

A vendor selection policy would define how vendors are selected for building the right relationship. Having criteria for selection of vendors acts as a framework for choosing them that fits the business’s policy, and meets the goals and needs.

Improving the efficiency of the procurement process is the key to unlocking more possibilities with this process. Some other steps that can be taken care –

  • Build strategies for supplier relationship management
  • Improve team abilities by providing them with enough training
  • Create an approval workflow using a workflow automation tool
  • Leveraging a cloud purchasing system can enhance and manage purchasing

What is E-Procurement? 

Procurement done through a network of information and systems is called e-procurement. The complete process is carried out online thus, eliminating any manual labor. The tools used can include the Internet, EDI (electronic data interchange), and ERP (enterprise resource planning). The step taken is the automation of different tasks in the procure-to-pay process, hence, optimizing it. 

A workflow automation system offers the process different solutions. The software can streamline and facilitate collaboration between the purchasing process and the vendors. Approvals are made easier based on locations or departments, and supported by three-way matching the process will not require human assistance. 

E-procurement is a technological solution that facilitates effective supply chain management and allows businesses to manage procurement effectively. These solutions also provide mobile applications making accessing easy from anywhere. Automation platforms simplify complex tasks by removing redundancies and controlling overspending. 

Is E-Procurement the Solution for Your Business? 

E-procurement solutions offer a row of advantages to businesses in managing the procurement process effectively. Today, every company has to digitize to meet rising expectations, giving them a strong competitive edge. With e-procurement, the quality of the process is enhanced and gives the end-users better results. Here are more results obtained from e-procurement solutions. 

Ease of Use

As the market keeps evolving, a cloud-based procurement strategy guides businesses to stay on par with the changes. Automation tools support scalability, hence, businesses do not have to upgrade their strategy or tools constantly. E-procurement provides stability and flexibility, reducing project timelines. Goods and services are bought and implemented quickly. Throughout the P2P process cycle, manual transactions are reduced drastically with the cloud. The processes that can be automated are –

  • Purchase order management 
  • Process non-manual supplier invoices
  • Manage revisions to procurement paperwork
  • Weigh negotiated prices

Enhanced Visibility

Procurement software brings all the tasks and their status into one space. The requester can view the progress of the initiated request anytime, anywhere. As a cloud-based software, it offers a shared platform for collaborative work and has a dashboard that gives a 360-degree view, improving visibility into the process. Improved visibility allows procurement professionals to detect gaps and inefficiencies in the process.

Improved Spend

E-procurement facilitates procurement teams in strategic planning of procurement, hence making it cost-effective. Businesses do not have to pay any upfront costs for SaaS-based solutions. This significantly reduces operational costs as well as streamline the process. These platforms offer reports and analytics that can be employed to analyze and shortlist suppliers based on preference. E-procurement reduces both cost and time spent on procurement initiatives. 

Employee Satisfaction

A manual procurement process is cluttered and disorganized, making it tedious and heavy to work on. Automating processes empowers employees and helps them to stay motivated. Moreover, through e-procurement software, employees have the autonomy to make their purchases. Every request will be authorized by respective approvers. The process is more standardized than before.

Improved Collaboration

A platform where every user can communicate and co-work is the best solution for managing purchasing and procurement. No matter the location, role, or department, users can communicate and collaborate effectively with no process silos. The tool bridges the gap between tasks, employees, and departments. Decision-making is exponentially improved, reducing turnaround time. 

Continuous Integration

A no-code automation software that facilitates integration can improve the flow of the tasks by connecting them. Integration allows users to interconnect different applications. Doing so ensures that the users do not have to leave the user interface to fetch data or documents.

The Impact of an E-procurement Software 

Procurement and purchasing involve several stakeholders as well as many internal and external factors. Irrespective of the similarities and differences, both these processes require immense planning and documentation. This is where e-procurement marks its relevance. These processes have a complex web of tasks and in a manual setup, each procurement cycle lasts for weeks or even months. This brings down the efficiency of the process. Therefore, it is essential to detangle them using a streamlining solution. A procure-to-pay software is all that is needed to reinstall the efficiency in the procurement process. So in what ways does e-procurement software help small, medium, and enterprise businesses? 

  • Offer approval workflows for purchasing and procurement 
  • Automated purchase order creation, approval, and storage 
  • Provides access to vendor catalogs 
  • Identifies, analyzes, and sources potential vendors
  • Analyzes and mitigates risks
  • Analyzes overlapping spending
  • Brings visibility into spending management
  • Purchase requesting functionality for every employee
  • Offers a mobile application to enhance user experience
  • Enables tracking deliveries
  • Organizes invoice and payment data

Procurement and Purchasing – An Interchangeable Relationship 

So far looking at the procurement vs purchasing, it is clear that you cannot pinpoint a winner. Both these processes are essential and businesses have to come up with strategies and plans that would enhance them. For a small business, a procurement strategy would empower their process, and for an enterprise, it can be a part of their corporate strategy. Hence, a powerful error-free process is a must. The difference between purchasing and procurement is essential information to understand that will help devise the right plan for improving the procurement process.

Embarking on E-procurement with Cflow for Enterprises

Cflow is an AI-based, no-code workflow automation platform that automates any process for enterprises. Our platform is equipped with effective tools that contribute to making tasks efficient, scalable, and error-free. The complete procurement process can be transformed into workflow, adding both internal (employees) and external (stakeholders, vendors, etc) factors to the workflow. All of them are brought together on one platform thus emphasizing accountability, visibility, and trackability in every requisition initiated. The users do not have to use any codes to build and use workflows. With a drag-and-drop workflow, form creation, and rules engine, workflows can be established. Cflow offers budget-friendly plans, suitable for small, medium, and enterprise businesses. 

Key Features – 

Customizable Templates – Cflow offers customizable workflow templates helping users save time in creating a workflow from scratch.

API Integration – The platform supports easy API integration, smoothing the process flow.

Security and Encryption – The tool promises the highest security to data with its data encryption which in turn is controlled by the user.

Reports and Analytics – Deep insights into all the tasks in procurement can be obtained through reports and analytics. 

Rules Engine – The sophisticated rules engine helps navigate tasks to the right team members at the right time. 

Conclusion

No matter the design and structure of your procurement and purchasing process, understanding them as a whole and procurement vs purchasing is highly essential. Doing so brings more success efficiently. Strategizing the procurement process means redefining it using an efficiency-stimulating solution. Workflow automation solutions or e-procurement software is the right choice businesses can make when it comes to enhancing procurement performance. Cflow is absolutely a wonderful platform for achieving this. Sign up for free now!

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