Both ‘purchasing’ and ‘procurement’ are terms that signify the process of acquiring goods and services that a company needs. This is the reason why many people mistakenly use these terms interchangeably.
Even though they sound like synonyms, there are some important differences between them. Understanding these differences can have a bigger impact on your strategies than you might think.
To help you gain a deeper understanding of these processes, let’s explain how they actually work.
Rather than a name for a single process, procurement is an umbrella term that encompasses many different processes associated with acquisition of goods and services. Aside from covering the purely transactional aspect, there are many other factors that need to be included in a well-developed procurement strategy.
To ensure that you meet your company’s goals and build stable, long-term profits, you need to take into account every aspect of your business that the procurement process deals with. It’s an integral part of your corporate strategy, which means that you need to consider the following:
- Company identity: Represents the values that your company stands for and on which your business model was developed.
- Market placement: Associated with the basic understanding of your consumers. Should answer the questions about who your consumers are and what they want from your products or services.
- Company capabilities: Related to your company’s strengths and weaknesses, exploitation of strengths, and the direction in which your company should grow.
- Management issues: Information about the ability of your management to fulfill the company’s goals and the availability of resources necessary to meet those goals.
Purchasing is just one of the components of procurement. It relates only to the process of exchanging financial resources for the necessary goods and services. As such, it should be the final step in the procurement process.
Once all the necessary steps have been taken, purchasing should be the result of the entire decision-making process. Since all complex matters have already been dealt with, purchasing is a straightforward task that closes the procurement process.
Even though this process is obviously far simpler than procurement, it is not any less important.
Many companies mistakenly handle tail spend only through purchasing. This is because these small purchases get far less attention than they should since they’re seemingly ‘less important’ than the big ones. However, these tail spend purchases add up. Viewing your tail spend purchases as a part of your larger procurement strategy is essential to good tail spend management.
Even when tail spend management is a part of procurement strategy, many companies use outdated solutions that can be complete productivity killers. Finding a solution that fits into your digital corporate environment, maximizes time and reduces risk is absolutely essential.
Once your team has distinguished purchasing from procurement, you’re one step closer to optimizing your tail spend management. Still, if this is something that you’re struggling with, seeking advice from a professional is always a good idea.