Is There a Difference Between Purchasing and Procurement? (A PI Q&A)

Posted on July 21, 2008

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Network Member Question

 

As far as I know, sometimes the terms “purchasing” and “procurement” can be used as the same meaning.  But in many cases it seems that both have different boundaries or meanings.  So what is really the meaning behind the terms?

 

Kurt Binh

Owner, SCM Vietnam – Supply Chain and Logistics Consulting

Viet Nam

 

My Response

 

In the traditional sense, there is a significant difference in that purchasing merely reflects the act of acquisition, while procurement encompasses more elements of the supply chain (re logistics, transportation etc.).

 

One might even consider purchasing to be the poor man’s version of procurement.

 

That said and for all intents and purposes, the debate (if one could call it that) is moot.

 

As a result of Supply Chain awareness increasing at the executive level due to its importance to an organization’s bottom line, defining and confining the role of the purchasing department to such a narrow scope does a disservice to the profession.

 

In an article from last summer titled Procurement’s Expanding Role and the Executive of the Future (see the first link under Web Resources), I reviewed a roundtable that was hosted by CPO Agenda.

 

In its entirety the post concerning the roundtable, which included CPO participants from organizations such as Nestle and Danone, is definitely a worthwhile read!  However, one point that stood out was the conclusion by the majority of senior executives in which they expressed the belief that the best individual to run a purchasing department is someone who does not actually have a purchasing background.  (At this stage the silence amongst my seminar audiences is usually deafening.)  It would not be unreasonable for one to conclude that the historically narrow definition of purchasing/procurement has contributed, at least in part, to this position.

 

Going beyond the realm of traditional supply chain elements (and by the way, the term supply chain is a misnomer in that it implies a sequential architecture when in reality, the acquisition process involves the synchronization of both internal as well as external stakeholders), it is important that supply chain professionals expand their area of thought and practice to include other departmental interests such as those of finance and in particular the CFO.

 

The importance of this point was demonstrated in an article I wrote earlier this year, in which I referenced a number of reports indicating that 73% of all savings claimed by purchasing departments were not accepted by finance as true savings (included amongst the savings claims that were denied was the myth of purchase avoidance).

 

Titled Bridging the Communications Gap Between Finance and Purchasing (see the second link), the research findings indicated that, “Too often, finance executives in Corporate America simply don’t believe that purchasing departments are really bringing in the savings they claim.”  This disconnect according to CFO feedback, “may be because financing and purchasing don’t speak the same language.”

 

Based on the above, the importance of differentiating between purchasing and procurement while interesting is at the end of the day an exercise in futility.  Therefore you need to look beyond the scope of functional distinctions to see and understand the broader role your profession plays in the day-to-day success of your organization.

 

Then, and only then will you be able to make the contribution in which all purchasing/procurement professionals are capable of providing.

 

 

 

Web Resources: