Introduction
When acquiring services and goods for the functioning of a company, the terms ‘procurement’ and ‘purchasing’ are often mistaken as meaning the same thing. However, there are substantial differences between the two in terms of objectives, processes, and goals. It is important that you understand the key differences between them to execute them effectively and maximize their value. In this article, we consider procurement and purchasing and how they vary so you can confidently differentiate between the two.
Key Summary
- The terms ‘procurement’ and ‘purchasing’ are often mistaken for meaning the same thing. However, there are key differences.
- Purchasing is the set of functions relating to buying goods and services a business needs. It is a sub-process of procurement. Think of it as the transactional stage.
- Procurement is an umbrella term for an organization’s processes to acquire goods or services from a third-party vendor or supplier. More than just purchase, this is a strategic function.
- To understand SaaS procurement and management better, learn the best practices by talking to a savings expert today. Ask the expert for a free consult that may save you hundreds of thousands of dollars.
What is Purchasing?
Purchasing is defined as a set of functions associated with buying goods and services that a business requires. They do not affect company growth but are needed for its continual operations. Purchasing is often mistaken for procurement because it is a sub-process of procurement. It always involves ordering, expediting, receiving, and completing payment. Purchasing begins and ends with placing and receiving an order.
The Purchasing Process
A typical purchasing process will involve the following steps:
- Send out requests for quotations (RFQs)
- Make and distribute purchase orders
- Receive goods or services
- Conduct quality assurance on the received goods or services
- Receive a purchase requisition
- Arrange payment to vendors
Common Purchasing Job Titles
To help differentiate between procurement and purchasing, it can be helpful to consider job titles. Here are some examples of standard purchasing job titles:
- Purchasing Associate
- Purchasing Agent
- Commodity Manager
- Category Purchasing Manager
- Buyer
- Supply Chain Specialist
What is Procurement?
Procurement is an umbrella term that is defined as the processes a business performs to acquire goods and services from a third-party supplier or vendor.
Procurement processes occur when you need to buy materials for the products your business sells, consulting services, or office supplies. In a nutshell, anything your company needs to accomplish goals. Procurement starts the supply chain and finishes when the internal needs of a business are fulfilled and a new supplier relationship has been set up.
The Procurement Process
The procurement process is predominantly concerned with value and return on investment (ROI). It involves more than just using a company credit card and making a purchase. It can include everything from identifying goods and services the business needs for growth to organizing the right records and documentation. Below are the steps usually included in the procurement process:
- Identifying a business need or requirement
- Conducting research into suitable suppliers
- Forming a preferred supplier list
- Supplying an RFQ
- Assessing the supplied quotes and suppliers
- Negotiating contracts and terms with suppliers
- Organizing and receiving the goods or service
- Undertaking a quality check
- Evaluating results, key performance indicators (KPIs), and margins
- Forming and maintaining supplier relationships
Common Procurement Job Titles
Below are some examples of common procurement job titles:
- Procurement Specialist
- Procurement Manager
- Procurement Agent
- Procurement Officer
- Chief Procurement Officer
- SaaS Manager (This is a new one, and is a result of the SaaS explosion). Read more about it, with a sample JD here.
If you want to hone your SaaS procurement skills, read our article on how to become a Procurement Pro.
Differences Between Purchasing and Procurement
There are numerous critical differences between purchasing and procurement, so we have created a simple table below to help clarification:
| Purchasing | Procurement |
| The simple process of purchasing goods or services | Processes that occur before, during, and after purchase |
| External process – used in a wholesale environment | Internal process – used in a production environment |
| Typically focuses more on the product’s cost rather than its value | Generally puts more importance on a product’s value and the total cost of ownership rather than its initial cost |
| Involves ordering, expediting, and fulfilling payment | Involves need recognition, contract closure, and sourcing |
| The specific task of performing expenditure | A set of tasks that identify and fulfill needs |
| Functions related to buying goods and services | Functions related to acquiring goods and services |
| Reactive approach – fulfill internal needs | Proactive approach – identify and fulfill needs |
| Raise and process purchase orders | Negotiate terms, conditions, and contracts |
| Transactional – concerned with transactions rather than vendor relationships | Relational – concerned with creating long-term vendor relationships |
| Focuses on short-term goals, e.g., quality, quantity, cost, time, and place. | Focuses on tactical long-term goals, e.g., aligning with corporate strategy or gaining a competitive advantage |
Why is it Important to Distinguish Between Purchasing and Procurement?
Now that we have established the core differences between purchasing and procurement, it’s time to discuss why it’s crucial for companies to distinguish these unique processes.
Firstly, procurement contributes to forming a competitive edge for a business and intends to negotiate the optimum value of an order for the lowest possible price with a vendor and therefore lets your company produce more while spending less money. It is business 101 that an organization’s income is determined by its profit margin, i.e., the variance between how much money it spends on procuring needed materials and how much money the business earns by selling the goods produced. Procurement, therefore, directly influences the revenue of a business.
Procurement is additionally associated with business strategy. For instance, if your company principles include corporate social responsibility, you should ensure that the vendors you work with align with these values and steer clear of those associated with adverse effects on the environment or unsatisfactory work conditions.
Purchasing, on the other hand, is a crucial part of the procurement process. It ensures you get the right quality and quantity of the goods and services ordered, that they are received promptly, and that payments are fulfilled on time. Therefore, businesses should regard procurement as a vital strategic process and see purchasing as its key tactical component. Companies must always seek ways to improve both.
Why Does Procurement Matter Over Purchasing?
When electing whether to invest in developing better procurement services, there are numerous considerations to make. Below we explain in which instances procurement services can be a beneficial choice rather than solely going down the purchasing route:
- Relationship: If you have a good and successful rapport with a certain vendor and wish to keep working with them, purchasing from them rather than undergoing procurement with a new vendor may be a better option.
- Customization: Procurement is usually the best option if you need something customized, as you can work alongside the vendor and make sure they fully comprehend your business needs.
- Timing: If you need something fast, purchasing something may be best, as procurement can take longer due to its increased complexity and process duration.
- Quantity: If you need a large volume of goods or services, procurement is generally better as you can obtain discounts and negotiate better deal terms with the vendor instead of simply ordering the product you need via a website and paying the sticker price. For instance, you can negotiate deals yourself as part of the procurement process or trust companies like Quolum to do it on your behalf to ensure that you only buy what you need and pay the lowest possible price for it.
- Cost: Since companies always negotiate with vendors during the procurement process, the cost of goods and services obtained as a result of procurement is often lower than the cost of services purchased directly.
- Data Utilization: At Quolum, we use utilization data to help our customers make sensible procurement decisions. For instance, we take note of your current SaaS tools, consolidate duplicate SaaS tools, and seek out and negotiate scalable pricing so you can get the most out of your SaaS tool experience whilst saving money. We can also help you renegotiate contacts based on your current SaaS usage and identify areas where you’re overpaying for services that you don’t end up using.
SaaS Procurement: A specialist ballgame
When it comes to SaaS, traditional purchasing simply does not stack up against procurement. Purchasing purely looks at the cost, whereas procurement is more concerned with value creation and ensuring you are getting the most out of your expenditures.
Today, most companies overpay for the software they use without even knowing it. While we see it everyday at Quolum, Gartner teams have confirmed this too. And in light of the upcoming economic downturn, this is not a mistake many businesses can afford to make.
If you’re looking to do SaaS procurement the right way, it’s best to hire professionals who have unique industry insight and utilization data that allow them to negotiate favorable contract terms for your business.
For instance, Quolum analyzes information such as:
- what SaaS tools your company already uses
- how many employees use these tools (and whether they are viable for continued company use)
- whats the best plan for a company your size
- what are market standard fees for such tools
Quolum then use this information to help negotiate, organize, and optimize your SaaS usage via its procurement process.
Purchasing, on the other hand, does not take into account a company’s individual situation. Therefore, if you are looking to manage the use of SaaS tools for your business, using a procurement platform such as Quolum is key to monitoring, streamlining, and conserving money on SaaS subscriptions.
Choose Quolum: A Full Stack SaaS Procurement and Management Platform
When considering a procurement and management platform for your business requirements, look no further than Quolum. Quolum is a one-stop shop for all your SaaS needs and is the only platform that includes all of the following:
- Managing SaaS and monitoring utilization across thousands of apps through Quolum’s native SaaS management platform. This can provide you with key insights into determining whether it’s necessary for your business to continue using a certain SaaS tool.
- Dedicated procurement and management expertise through the use of insights and data. This can help your business save money and get the most out of your SaaS tools.
- Payments for SaaS with the Quolum SaaS Card – the globe’s first card designed for digital spending. This makes it easier to buy SaaS software and keep track of what you are spending on SaaS tools.
Quolum is the only tool in the world that includes payments, license monitoring, and negotiation, making it the only platform you need for SaaS management. Additionally, we offer a savings guarantee. Put simply, if you do not save money, you do not pay. We take advantage of utilization data to negotiate the best possible contracts on your behalf to help you get the best possible ROI.
Choose Quolum today and save countless hours and dollars on SaaS buying and management so you can focus on what really matters: running your business.
FAQs
Is purchasing also called procurement?
While many people use purchasing and procurement interchangeably, they have distinct differences. Purchasing is a sub-process of procurement, primarily associated with the transaction process.
What is procurement in simple words?
Procurement is an umbrella term for the processes a business performs to acquire goods or services from a third-party vendor or supplier. Procurement starts the supply chain and ends when the internal needs of a company are fulfilled, and a new supplier relationship has been established.
Why is procurement so important?
Procurement contributes to creating a competitive edge for a company and strives to negotiate the optimum value of an order for the lowest possible price with a vendor, letting your business produce more while spending less. Procurement directly affects the revenue of a business.