Procurement 101What’s on The Menu? The Difference Between Procurement & Purchasing
You’ve been operating a Mexican restaurant for just under a year, and the chalupas and taquitos are quickly gaining local fame. After a considerable amount of research, you’ve established the ideal system for purchasing avocados, the primary ingredient in every menu item (your restaurant has a strict no-variety policy).
A savvy business decision was made to use Hass avocados, as they’re grown near your restaurant in California, and this fact keeps the hipsters loyal. Each supplier is individually contacted so you can obtain the necessary product updates, as soon as possible. Since you purchase a bulk order of avocados every week, Requests are useful to determine what each supplier can offer in terms of price, quality, and delivery options. Once the bids have been compared, you select the ideal supplier and sign a contract. Without these superior quality avocados, patrons wouldn’t be able to enjoy the Guacamole-Stuffed Pollo, Queso Avocado, and Gorditas de Guac Carne.
Does this example describe procurement or purchasing? Why does the difference matter?
The strategies applied by this restaurant are closer to the concept of procurement, as opposed to purchasing. In fact, it’s downright inaccurate to use these terms interchangeably (we’re not just arguing semantics). When it comes to software, a procurement solution is not the same as a purchasing solution– purchasing is a single component within the procurement process.
This blog will define both terms while outlining the main differences, so customers can purchaseavocado-poblano guacamole in a sensible manner and you can procure the raw ingredients.
There’s still a significant amount of confusion in regard to these terms, but ‘procurement’ is typically used as an umbrella word that includes purchasing. Procurement is a planned, strategic process, ideally synchronized with its organizational objectives. It involves strategic sourcing, contract management, category management, Supplier Relationship Management (SRM), and all stages of Purchase-to-Pay (P2P).
The term ‘purchasing’ refers to a transactional activity – it’s a tactical function that focuses strictly on the acquisition of goods or services. By definition, ‘purchasing’ should be used to refer to the exchange of money for items, as a subcategory of procurement. This interpretation eliminates any possibility of confusion.
A procurement software solution is all-encompassing and overlays corporate objectives – consider it to be an adaptable, “all-in-one” tool covering your entire procurement process from end-to-end. On the other hand, a purchasing solution may not include the requirements of the entire organization, and is unlikely to synchronize with a supplier’s core capabilities. Purchasing software, sometimes referred to as a P2P application, may be more limited in its features, and usually involves less critical or lower risk items.
These differences should help illuminate the benefits of a procurement solution and the proper context in which to use the word “purchasing”. If you want to align the requirements of your entire organization and collaborate with suppliers, look for the term ‘procurement‘ when researching potential software. You never know, you might find an application that perfectly meets your needs and appreciates Mexican cuisine.
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