Purchasing And Procurement

In history, the word purchasing appeared in two overdue nineteenth century, when the Industrial Revolution was at the peak point of development. In those days, purchasing function was just selecting, buying, acquiring and providing all commodities required. Gradually, the function of purchasing is rolling out more however, not much until the late of twenty century when the globalization was booming and information technology had reached some breakthrough achievements. That was enough time when companies started broadening their businesses into global. Since the demand of not only raw materials but also outsource services was increasing, the role of purchasing moved up to new level. Purchasing was no more in the passive state but evolved to active talk about. Purchasing nowadays plays an important role to aid the corporation to attain the competitive advantage. Therefore the term "procurement" comes to light. The following sections will discuss more specifically about the purchasing and the procurement.



For anyone of us, term "purchasing" is very familiar. In lifestyle, we just understand this word with mean "buy". However, running a business, purchasing is thought as an operating group that performs many activities to ensure it offers maximum value to the business. These activities include provider identification and selection, buying, negotiation and contracting, source market research, supplier way of measuring and improvement, and purchasing systems development.


The objectives of buying are very simple. Purchasing must buy materials of the right quality, in the right variety from the right source delivered to the right place at the right time at the right price. Initially, the objectives audio fair but there is something not practical. The word "right" is a vague concept because there is nothing to evaluate how right each goal should be. Furthermore, in reality, some aims can conflict with one another. For instance, it is difficult to find the right quality with right price because the best suppliers usually come along with high price.

According to Lysons and Farrington (2006, p6), above description has three details that require to give consideration

Reactive rather than proactive - which means that purchasing just try to fulfill the requests but not contribute to the company's competency.

Transactional somewhat than relational - this means that purchasing only nervous about the price that suppliers offer but not try to build the long-term partnership to support each other.

Tactical somewhat than proper - this means that purchasing only target to complete the quest in a nutshell term however, not planning the technique for the long term.


As Ameredes (2007, p1) brought up, the original purchasing process is split into 9 steps

Research products - examining the catalogs, acquiring a mobile, letter mind or web quote

Create requisition - a requisition is composed to buy goods from a dealer.

Requisition acceptance - with regards to the budget established by the business, the requisition is routed to a approver who gets the option to reject, change accounts numbers, volumes, etc.

Purchase order - the purchase order is created after the approval

Supplier creates deal order and fills - POs are authorized into the supplier's sales order system. Then, if the products are in stock, the company will choose items for delivery, produce a packaging slip and then send the things.

Receipt of goods - organizational audit handles will explain whether receipts need to occur centrally or at the desktop. Centrally means that your company has a central acquiring dock where deliveries and details of receipted goods are systematically monitored.

Supplier invoice received - the supplier invoice is received either on paper Pay dealer - all invoices which have acquired all invoice lines efficiently matched are approved for payment then the repayment is performed.

Post expense to GL - the transaction's life routine expires as a cost in the General Ledger.

Research products for purchase

Create requisition

Requisition approval

Purchase order

Receipt of goods; receipt is moved into against PO

Supplier creates sale order & fills (generate packing slide and invoice)

Pay supplier

Supplier invoice received

Post charge to GL

Traditional Purchasing Process (Ameredes. 2007, p1)

Even though the procedure for traditional purchasing appears simple, it contains a lot of issues. Minus the support of the information technology, there are a great number of non - value - adding clerical activities. Normally, for a new buy purchase, a minimum of seven different documents (requisition, enquiry, quotation, order acknowledgement, advice take note, goods received note and invoice) are would have to be signed. Moreover, throw away times are taken up to process purchases, both internally and externally. And the cost is paid high for non - add - value activity like pure transaction.



According to many authors, procurement can be define in lots of ways but still has some basic factors. Lysons (2006, p6) defined that procurement is a wilder term than purchasing and obtaining good or services at all, including borrow, leasing or even induce or pillage.

In this is of Dobler (1997, p37), procurement will not only include the function of buying but also attach others activity such as materials specifications, materials studies and value evaluation, management of distributor quality, purchase of inbound travelling, management of investment restoration.

However, in their wording, Handfield, et al (2011, pp10 - 12) consider purchasing and procurement are the same while defining resource management more broaden, "supply management is strategic approach to planning for and acquiring the organization's current and future needs through effectively managing the supply bottom, utilizing a process orientation in conjunction with cross - efficient teams to achieve the organizational objective. " Although providing the specific definitions, they did not distinguish the usage of three conditions purchasing, procurement and offer management obviously.

Besides, Kaufmann (1995, p277) prefers sourcing as an increased degree of purchasing, "an integrative management method of designing all provider relations in the sense of a total relationship management"

Not only Handfield, et al (2011, p12) and Dobler (1997, p37) use resource management as the wider idea of purchasing but also Arnold (1997, p6) make use of it to describe the broaden numbers of purchasing including materials management, inbound logistics, and outbound logistics.

In comparison with above viewpoints, Tempelmeir (1995, p3) clarifies the word procurement as all activities aiming at providing the business with needed inputs

Although getting the same definition of procurement with Tempelmeir, Corsten (1994B, p191) shows that source management is the procurement with a proper focus that serves proactively and contributes significantly to company performance.

Despite of different ways to specify procurement term, there are some common ideas. Definitely purchasing is the basic level of just how of obtaining the materials. Then procurement is the next degree of purchasing. Not merely acquiring the materials and services but procurement also consists of in supporting the organization to achieve competitive advantages.


Under tree motorists, globalization, it, changing development and management methods, the philosophies of purchasing rapidly have modified recently. Relating to Handfield (2011, p2011, pp42 - 44) procurement's aim are no longer is to obtain goods and services in response to inside needs but include five new key ones.

The first purpose is keeping the resource flow continuously. This means the traditional role of purchasing function still maintained in the procurement. In other words, procurement must match the needs of businesses through purchase the services, raw materials, components, subassemblies, and repair and maintenance items. Furthermore, procurement may support certain requirements of physical distribution centers responsible for storing and delivering substitute parts or finished products to get rid of customers. Besides, procurement supports engineering and technical categories (such as IT), especially during new - product/ service development and outsourcing of key procedures.

The second goal is taking care of the sourcing process proficiently and effectively. To be able to achieve this purpose, procurement should do as followings

Determining staffing levels

Developing and adhering to administrative budgets

Providing professional training and growth opportunities for employees

Introducing better buying programs within the procure to pay systems that lead to better spending visibility, successful invoicing and payment, and end user satisfaction

The third aim is developing source base management. This implies procurement should do the choice, development, and maintenance of suppliers. More specifically, procurement must

Choosing competitive suppliers

Identify new suppliers with prospect of excellent performance and growing tight connections with these suppliers

Improving existing suppliers

Developing new suppliers that aren't competitive with current suppliers

With this purpose, procurement now gets closer to the distributor and works with more assistance than pure business deal. This point is totally not the same as the purchasing because procurement is no longer deal with inside organization's tasks but also the external ones. Using this method procurement can gain a resource base with the capacity of providing performance advantages in product cost, quality, technology, delivery, and new - product development.

The fourth goal is expanding aligned goals with interior stakeholders. Before, each mix - function was as an isle which was no reference to others. However this ways can not work on short-term business. There's a need to do the cross - functional relationship and mix - boundary communication. Therefore, procurement must make connection with other functions which have an important stake in the potency of purchasing performance.

The last purpose is developing included purchasing strategies that support organizational goals and targets. This implies the procurement can straight affect (favorably or adversely) the long - term development, revenue, and functioning outcomes and plans of inner customers. If procurement can positively be a part of the corporate planning process, it will give the source market intellect that contributes to strategic planning. Resource market brains can be

Monitoring supply marketplaces and styles( for good examples, material price raises, shortages, changes in suppliers) and interpreting the impact of the styles on company strategies

Identifying the critical materials and services required to support company strategies in key performance areas, especially during new - product development

Developing resource options and contingency plans that support company plans

Supporting the organization's dependence on a diverse and globally competitive resource base


Because the procurement now performs an important role in the tactical planning of company, it requires more responsibilities. Matching to Handfield, et al (2011, p45 - 50) the tactical procurement process is confirmed as below

Procurement Strategy

Spend Examination/ Management

Demand Management & Technical specs/SOW's

Category Strategy & Distributor Evaluation

Cost Management

Rate and UNIT of consumption is employed as an input to manage demand, which is utilized as an input into category strategy

Procure - to - Pay Process

Supplier Romance Management

Contract Management

Strategic Procurement Operations (Handfield, et al, 2011, p 50)

Spend examination is the procedure of collecting historical data by item, in accordance with demand from the lines of business, with the exception of personnel bills, occupancy, and commercial spend. The effect is employed to coordinate demand management, item management, and risk management strategies. It really is helpful to talk to business partners to learn where they spent their money and why it was spent.

Demand management is the process of using UNIT and RATE use to levels to forecast and estimate future consumption within an inner function customer, and providing instruction and input about how to optimize use and educating the user on the tradeoffs. Demand management activities may entail

Optimization of sourcing strategies centered on how much the team jobs they will buying

Proactively setting regulations, procedures, and way of measuring systems that throttle the consumption and total expenses of a unit of group of spend

Ensuring appropriate degrees of capacity in the supply base necessary to lessen risk.

Establishing a set set of criteria to limit options, and restricting the supply base to include only preferred suppliers who adhere to risk and conformity requirements.

Specifications/SOW's is the procedure that procurement combines the knowledge and expertise about a wide selection of materials and services with the organization's gain.

Category management is the procedure of developing external industry intelligence and analysis, inside demand, supply bottom part capabilities and operational risks, and a technique to plan that marketplace with this must match it using what suppliers can offer.

Contract management is an activity associated with determining the contract, defining roles and duties of both get-togethers, and advising when to change and ensure appropriate escalation.

Cost management is the procedure of analysis the purchase price paid and other components of price over the life span cycle of something or service, to deliver a aim for cost and a product rate to ascertain if it's priced competitively available on the market. Cost management can help make decision in many cases

The cost of helping an activity or commodity

The distance between cost individuals and the assumed business case

Identifying the business enterprise case

The total cost of offering a service, including al of the components of getting, use, and disposal over the life span circuit of the offering.

Managing the procure to pay process concerns with the automation of most transactional activities from the thread of happenings occurring from enough time of buying a good or service, through the discharge mechanism, to the idea of issuing repayment, including: requisitioning, RFX, deal award, orders, acceptance, receipt, payment

Supplier Marriage Management is the end - to - end process of managing a supplier through the whole sourcing life pattern, which includes first identifying the abilities of a specific company in regards to to performing something for the inner customer, doing a sourcing event, negotiating a deal, performing an order, and deciding payment. All aspect of the relationship can include

Day - to - day transactions

Identification and mitigation of operational risk and deliverables

Business continuity planning

Understanding the suppliers' business challenges

Identification of opportunities to boost value and reduce cost

Establishing scorecard metrics for improvement and researching progress towards these objectives

Contract conditions and conditions

Leveraging the move of information between key interior process owners and the company to set-up value

A procurement strategy is a all natural plan for developing the business, assingning resources, and aligning these resources against the demands put on the resource chain by the business. A well - developed procurement strategy includes

A repeatable and well - described process for building strategy and governance around defining, planning, controlling, and obtaining products and services for a business

Clear positioning with executive eyesight and internal customer - specific business goals

A process based on well - developed dealer market intellect and input from professionals and interior customers

Established goals and metrics for short - term task plans, as well as a define five - calendar year plan

Established communication plan to inform older management and everything lines of business modified and assessed quarterly against described goals and objectives


In summary, different point between the purchasing and the procurement is range of affection to the business enterprise plan of a business. While purchasing has the tactical development, procurement will involve more in proper focus. Purchasing just targets acquiring the products and services with best value and price, while procurement span the love through the supply chain. Purchasing does not care about the suppliers but procurement considers the key of human relationships. Finally, purchasing is often in the passive state and uses the affect of incoming happenings while procurement can plan a mind the future.

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