Procurement = Purchasing ? Explained using Enabling Procurement’s 6 Step process
Wikipedia defines purchasing as an attempt by a business or an organization to acquire goods or services to accomplish its goals. All right, great! But wait, how is this different from procurement? Procurement is also “procuring” goods or services right? Well, yes and no. From a grammatical point of view yes, but from a technical point of view no. In simple words purchasing is an activity whereas procurement is a process. Through this article, I will explain the difference between the two terms which are so conveniently (but incorrectly) used interchangeably.
Before getting into the difference between the 2 terms, it is essential to understand what happens in procurement. Let me take you through what happens “behind the scenes” in the procurement process. We at Enabling Procurement have come up with our own steps – both proven and tested in the consulting world. These steps is what we, at Enabling Procurement, like to call as the “6 Step Process”. So what does the 6 Step process look like –
The first step involves reviewing the existing strategies & learning from the activities done so far. Once we understand the previous work done, we review the project spend, identify the project team members, identify and engage with the stakeholders and develop a project plan. This helps set clear boundaries on our role, which helps align all the stakeholders on the same page.
The second step covers the internal review of requirements, testing the scoping decisions, forecasting demand, undertaking market analysis and summarizing the AS-IS situation.
The third step involves developing the sourcing strategy & tactics, getting the buy-in of the stakeholders & communicating the same to the supplier market. The communication to the supplier market is done using tender documents which are prepared internally by us.
The fourth step covers the development of the tender documents, bid management, bid evaluation, negotiation and developments of the award recommendation summary.
This is then followed up by the fifth step which covers the finalization of the contract T&Cs, signature etc. It is in this step that we finalize all the agreed conditions in the form of a formal contract so that everyone knows what to deliver/expect.
Our work does not end here! We also make sure that the agreed conditions (From both the client side and supplier side) are followed during the “implementation” stage which is our final step. This includes management of the performance, relationship and contract during the execution of the contract term, including eventual review/closure. We do these using our in-house tools.
It is only after the final step that goods are actually purchased. As seen above via the various steps involved, procurement is an umbrella term under which purchasing is a part. Because purchasing is one of the processes of the procurement process, both these terms are often used interchangeably, which should be avoided.
