What is the difference between purchasing and procurement?


Quick Answer

Purchasing refers to the process of ordering, receiving and paying for goods or services, and is part of the procurement process. Procurement is a larger organizational function for establishing fundamental requirements, performing market research, evaluating and selecting vendors, and negotiating contracts. Businesspeople often informally use the terms procurement and purchasing interchangeably, but this practice may cause confusion.

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Full Answer

Procurement is a core component of a large organization's strategic planning process. Other aspects of a strategic plan that may affect procurement are a company's identity and mission statement, market positioning, customer profile, and organizational strengths and weaknesses. So if, for example, human rights are important to a company's identity and customer base, it may want to exclusively buy fair trade goods. This decision, in turn, narrows the pool of vendors, increases wholesale prices and slows shipping times.

The procurement process may be broken down into a number of steps, including identifying requirements, issuing a purchase request, identifying suppliers, negotiating terms and selecting a vendor. At this point, the purchasing department begins the work of issuing a purchase order, tracking the fulfillment of goods or services, confirming completion of the order and issuing payment. A large corporation may have entire departments attached to each of these steps, while in a smaller organization, the entire procurement process may be handled by a handful of people or even a single individual..

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