Purchasing vs. Procurement: What's the Difference, and Why Does it Matter?

Purchasing vs. Procurement

Purchasing vs. Procurement: What’s the Difference, and Why Does it Matter?

In order to maintain competitiveness, modern organisations must be both agile and efficient, and one of the most vital functions they must perform is procurement. Unfortunately, there is often confusion between the terms “purchasing” and “procurement” ,which are sometimes used interchangeably.

To clarify these concepts and explore the importance of procurement transformation, we will examine the differences between purchasing and procurement. Additionally, we will highlight the advantages of implementing a procurement solution such as SAP Ariba.

So, let’s dive in and review the key distinctions between purchasing and procurement.

Purchasing vs. Procurement

Purchasing and procurement are related concepts, but they have distinct meanings and implications. Purchasing refers to the process of buying goods or services from a supplier, typically involving activities such as identifying potential suppliers, requesting quotes or proposals, negotiating contracts, placing orders, and making payments. In this sense, purchasing is a more tactical and transactional activity that focuses on the acquisition of goods or services at the best possible price, quality, and delivery terms.

On the other hand, procurement encompasses a broader and more strategic approach to acquiring goods and services. Procurement refers to the entire process of identifying business needs, evaluating market options, selecting, and managing suppliers as well as optimising the use of resources to meet organisational goals. Procurement involves a range of activities beyond purchasing, such as market analysis, supplier assessment, risk management, demand planning, contract management, and supplier performance evaluation.

The difference between purchasing and procurement is not just a matter of terminology, but of scope and perspective. Purchasing tends to be more reactive and focused on immediate needs, while procurement takes a proactive and strategic view of the entire supply chain. Procurement aims to achieve a balance between cost, quality, delivery, and sustainability, ensuring the organisation obtains the best value from its suppliers.

Procurement Transformation

Procurement transformation involves the strategic rethinking of an organisation’s procurement function to drive value and improve performance. It is an ongoing process that requires a long-term commitment from the organisation’s leadership. The goal of procurement transformation is to move from a tactical, transactional approach to a strategic, value-driven approach that aligns with the overall business strategy.

There are several key components of procurement transformation, including:

  1. Supplier Relationship Management (SRM)

Supplier relationship management (SRM) is a strategic approach that involves building, maintaining, and enhancing collaborative relationships with suppliers to achieve business objectives. One key aspect of SRM is to develop strategic partnerships with suppliers that go beyond transactional interactions and create value for both parties. Strategic partnerships with suppliers can drive innovation, improve quality, and reduce risk in the supply chain.

  1. Category Management

Category management involves grouping similar products or services into categories of spend and managing them as a single unit to achieve better value for money. By organising procurement activities around specific categories of spend, such as raw materials, IT, or marketing, businesses can gain better insights into spending patterns and identify cost-saving opportunities.

  1. Data Analytics

Procurement data can be collected from various sources, such as purchase orders, invoices, supplier contracts, and supplier performance reports. By analysing this data, businesses can identify trends, track supplier performance, and make better-informed purchasing decisions.

  1. Change Management

Change management is an essential aspect of successful procurement transformation initiatives. Engaging stakeholders across the organisation is crucial to driving the adoption of new processes and technologies.

Stakeholders can be defined as individuals or groups who are impacted by the procurement transformation initiative. They may include internal stakeholders, such as employees, managers, and executives, as well as external stakeholders, such as suppliers, customers, and regulatory bodies.

  1. Digitalisation

Procurement processes can be made more efficient and cost-effective by adopting digital technologies like e-procurement systems, cloud-based platforms, and data analytics tools. These tools can help to streamline the procurement process, increase transparency and reduce costs.

CJV Partner’s SAP Ariba Procurement Solution is an example of a cloud-based procurement solution that leverages digital technology to provide a new and innovative approach to procurement. The solution offers guidance to users, enabling them to make the best choice for their procurement needs.

SAP Ariba Procurement Solution

SAP Ariba helps organisations automate and streamline their procurement processes. It is designed to drive efficiency, reduce costs, and improve collaboration between buyers and suppliers. SAP Ariba offers a range of modules that cover the entire procurement process, from sourcing and contracting to invoice management and payment.

SAP Ariba’s key features include:

  • Sourcing and Contract Management: The ability to create and manage contracts, request bids from suppliers, and track supplier performance.
  • Procure-to-Pay (P2P): An end-to-end procurement process that covers requisition, approval, purchase order creation, receipt of goods or services, and invoice management.
  • Supplier Management: The ability to manage supplier information, track supplier performance, and collaborate with suppliers on contracts and orders.
  • Analytics and Reporting: A range of tools and dashboards that provide real-time insights into procurement performance, spending patterns, and supplier performance.

Organisations can gain several advantages from adopting SAP Ariba, such as:

  • Cost reduction: With automated manual tasks and optimised procurement processes, SAP Ariba can assist in minimising procurement costs
  • Enhanced Compliance: Organisations can ensure compliance with legal and regulatory norms by leveraging SAP Ariba’s contract management module
  • Improved Efficiency: The P2P process of SAP Ariba can aid organisations in decreasing the time and energy required to oversee procurement activities
  • More Visibility: SAP Ariba provides real-time visibility into spending patterns, supplier performance, and procurement processes. This helps organisations make more informed decisions and identify areas for improvement.
  • Better Collaboration: SAP Ariba’s supplier management module provides a platform for improved collaboration between buyers and suppliers. This can lead to better supplier relationships, increased innovation, and reduced risk.
  • Improved User Experience: SAP Ariba offers a modern, user-friendly interface that makes it easy for users to navigate the procurement process. This can lead to increased user adoption and fewer errors.

If your organisation is seeking to enhance its procurement operations, our strategic sourcing solutions are a perfect choice. We believe that while purchasing and procurement are not interchangeable terms, the use of a procurement solution like SAP Ariba can enhance the efficiency and effectiveness of procurement processes.

Our procurement transformation services are available to help your organisation succeed.

Get in touch with our team to discover more.