What is the difference between purchasing and procurement?
Both purchasing and procurement are related to the sourcing of goods and services and can often be part of a single department like supply chain. But there is a huge difference between this to entity. one is related to the bigger picture and strategic activities where is the other one is the transnational thing which happens on a day to day basis. These are two different business processes. Procurement is a broader term which deals majorly with the strategic part of any business Like vendor development research contract price negotiation. where as purchasing Is the act of day to day transaction to run the business in an efficient way Like regular discussion with suppliers on material shortages, evaluating purchase requisitions, placing purchase orders, follow-ups material receipt, vendor payments etc.Let us discuss both process in detail:
What is purchasing:
Purchasing is the process of buying materials or services from sources, managing the sources, keeping records and other day to day activities related to acquiring the goods and services. This is the daily transactional activities to keep the business running.Mini expert says that purchasing is a subset of procurement function. but activities related to purchasing are different from procurement. The purchasing process is defined and explained below:
1. Receive and evaluate purchase requisition: In this process the Purchase requisition for the need from the required departmental function, to be reviewed and evaluated.
2. Floating RFPs and RFQs: The purchasing department then followed the RF peace and RF used into the market To get required suppliers.
3. Create and distribute purchase orders: After the evaluation of quotations the purchasing team create and distribute the purchase order to the selected suppliers.
4. Follow up with suppliers: Follow Ups are one of the most important parts in the purchasing process. This helps to create a good relationship with the supplier also the purchaser gets a clear cut status of the purchase order.
5. Inspection: The responsibility of receiving a good quality product is also the purchaser's responsibility. As per The Sale of Goods Act 1930, the buyer is responsible for the quality of the product. It is known as Caveat Emptor( Latin phrase means “ let the buyer be aware”).
6. Receipt of material: The receiving of material in good condition from the supplier. If required the purchaser needs to follow up with the Transporters also to get the material on time at the right place in the right quantity.
7. Supplier payment: This is one of the primary responsibilities of the purchasing function. as the purchasers are the daily point of contact for the suppliers and the purchasers are placing the Purchase orders which is a legal document, the purchaser should ensure timely payment to the vendors.
What is procurement:
Procurement is the process of finding desired goods or services with agreed terms and conditions with free consent of both the parties, from an external source/supplier through some tendering or bidding process. The process of agreement or contract must be done in accordance with the guidelines of .Indian Contract Act , 1872.It is mostly a strategic process. In many cases purchasing and procurement are very much similar. Apart from the purchasing process, below are the activities of the procurement function.
Supplier Identification and development: It is one of the most important role of requirement function to search for better suppliers on a regular basis.
Negotiation: Requirement team are responsible to to the negotiation with supplier related to the supply chain terms and conditions like price packaging delivery time and other contracts
Supplier assessment: Along with quality and supply chain team, the procurement function needs to assess and evaluate suppliers on a regular basis.
Budgeting And spend analysis: Purchasing department is responsible to do the spend analysis and budgeting for the purchased parts. This includes analyzing and cleansing the materials and vendor Master Data, Re assessing the terms and conditions, Generate and action on cost saving ideas etc.
Supplier risk analysis: To assess and analyse the risk related to the supplies of materials and services and take action accordingly.
Process improvement: Implementing new ideas and processes like new software, EDI, digitization in procurement , ERP, MRP etc.
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