Procurement vs Purchasing

Topics: Procurement, Supply chain management, Management Pages: 11 (3100 words) Published: January 13, 2013

1. Introduction
1.1 The need for purchasing and procurement
1.2 The process of procurement
1.3 The process of purchasing.
2. Procurement.
2.1 supplier selection
2.2 supplier base management
-Early supplier involvement
-Supplier Development
-Supplier Association
2.3. Supplier Relationship
2.4 vendor Managed Inventory

3. Purchasing.
3.1 objectives
3.2 E procurement and E purchasing
3.3 Just in time
3.4 procure to pay
3.5 types of purchases

4. Conclusion.
5. Reference.


The need for acquiring materials or assets for an organization is fundamental to their business operations. Creating strategies and methods to procure the best materials at the most cost efficient ways and to maintain the same can be only put to practice with a dedicated procurement and purchasing functions. The terms purchasing and procurement are often interchanged, but they do differ in scope. Procurement is much wider term and it is a strategic element when compared to purchasing. Purchasing is the functional part of procuring materials for the organization.

“Procurement can be broadly defined as all the planning, analyzing and measures taken to acquire goods and services required to run the organization smoothly.” Procurement can be of two types direct and indirect. Direct procurement involves the acquisition of raw materials and goods required for production. Indirect procurement involves the acquisition of maintenance, repairs and operating supplies.

Procurement and purchasing together is responsible in fulfilling the input needs of the organization. The history of procurement dates back to the times of Egyptians. During that time, the Egyptians for their huge pyramid projects tracked the supply of building materials and workers. In modern era, procurement gained importance with the industrial revolution. Procurement dates back before 1900’s when purchasing was independent function in railroad organizations. Later during the world war era purchasing gained more importance as obtaining raw materials was more important.

“ Purchasing can be defined as the activity of acquiring goods and services to meet the goals of organization”. Purchasing can also be divided into direct and indirect. Direct purchasing involves the method of paying cash or money directly and getting the goods. Indirect purchasing is when the purchasing is done with a third party involved.


The need for purchasing and procurement

Procurement is an essential management for an organization. The depth of procurement varies according to the business functions of the organization. Every organization has procurement planning before they setup their physical assets. Service sector like banks also focus on procurement function to reduce costs in its operating expense. Organizations have internal procurement and external procurement. Procurement is linked with the strategy making of an organization.

Purchasing on the other hand is responsible for the day-to-day supply of materials. The role of the purchasing department is * To provide all materials, supplies, tools, equipment, and services required for the organization’s operations * To secure materials, supplies, equipment, and services at the lowest possible cost. * To furnish members of management with timely information. * Building, organizing, and maintaining formal lists of potential suppliers. * Ensuring continuity of supply through coordinated planning, scheduling and contracts.                  * Assuring good quality of raw materials

* Documenting purchasing actions

The process of procurement

Defining business needs: The requirements and needs of the organization should be analyzed and understood. The future needs, and current needs of the company to operate the firm.

Develop the procurement strategy: Depending on the business and function of...
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