UNDERSTANDING THE DIFFERENCE BETWEEN PROCUREMENT & PURCHASING

A common misapprehension made by many corporate executives, HR and Recruitment professionals is the failure to appreciate the fundamental difference between Procurement and Purchasing, as the terms are often used interchangeably.

Procurement whether in the private or state sector, is the long term strategic based planning and development function responsible for securing goods and services promptly, with minimum disruption, in the right quantity, at the quality and right price, thus helping to ensure sustainable core operations, and the achievement of strategic corporate goals and ambitions. It is therefore vital to executive management, planning control and oversight. Purchasing however, is concentrated primarily on successfully achieving Tactical (day to day) buying transactions and purchasing operations to support those Strategic Plans.

Procurement is an overarching long term strategic plan focused on improving corporate  profitability (essentially reducing the bottom-line) and attainment of the corporate strategic goals and vision through the process of strategic sourcing (which some SCM professionals view as an independent discipline to Procurement). The overall importance of Procurement is recognised in many organisations, by the fact that Procurement heads are now often also Executive Board Members.

Procurement activities include amongst many others- vendor selection, appointment and performance management (and in certain instances development thereof), contract negotiation, clauses and Service Level Agreements, Procurement Intelligence , internal client relations, Quality Assurance of all Buy Ins, Procurement Alignment to Strategic Corporate Goals etc.

Purchasing by differentiation, is the tactical (operational) buying transactions such as sourcing of goods and services, quantities, price negotiation, Purchase Order placement, Expediting, building functional buyer-rep relations etc.

There is however a definite cross over between Procurement and Purchasing responsibilities i.e. vendor selection. In this example, strategic importance of the vendor to the supply chain, would dictate whether selection should become a Procurement or Purchasing responsibility. It is because of these indistinct areas of cross- over of responsibilities that has given rise to the misconceptions concerning Procurement and Purchasing definition.

A very common mistake made when looking to appoint a head of Procurement, is not determining from the get go, whether you actually need a strategic based professional or a tactically based professional in the role. In many instances dependent on unique circumstances and requirements, a good workable solution is to appoint a Procurement (strategic) Manager with a Senior Buyer (Purchasing) as deputy head.

This is simply using the tried and proven millennia old military command structure of appointing an officer (Strategic) and Non Commissioned Officer (Operational) to support each other, which may just be translatable to your long term Procurement and Purchasing management requirements.

It has been my experience that most Procurement professionals can effectively lead and develop a Purchasing function, but many Purchasing professionals cannot cope with strategic based Procurement responsibilities.

It has also been my experience that companies tend to appoint according to specific industry experience. This of course is perfectly logical if you are looking to appoint a person with a specific industry expertise to manage your tactical purchasing needs. HOWEVER, this tactical based expertise may not be as crucial should you be looking at an appointee to manage and plan your long term strategic procurement requirements.

It is a case of the best fit for the task at hand.  Therefore, when considering appointing for a specific management role, be very clear as to whether you appreciate and understand the distinct differences between the two, what your long term expectations are regarding the position, the abilities and experience required etc.

Should you have any enquiries regarding Strategic Procurement or Tactical Purchasing strategies, job descriptions or Skills Requirement assessments and audits within Procurement and Purchasing,  contact Karl@furrutterandassociates.co.za, or  alternatively via his LinkedIn page.