Purchasing vs. procurement: What’s the difference?

Purchasing, also known as buying, refers to the transactional process of purchasing goods or services, while procurement encompasses the entire process of sourcing, negotiating, and managing contracts for goods and services. 

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These terms are often used interchangeably, but it’s important for CFOs and procurement professionals to understand the differences. That’s because simply making a purchase when you should instead be following a procurement process could be an expensive mistake.  

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Let's clarify the differences between purchasing and procurement so you’ll know how to make the most beneficial purchases for your organization. 

Procurement vs. purchasing: A full breakdown of their differences

Purchasing and procurement do share similarities, as they both involve working to acquire the goods and services you need to run your business. But there are key differences between the two in areas including their focus and scope, the steps involved, and the impact of each on your organization. 

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Purchasing, or buying, is primarily transactional and focuses on fulfilling immediate needs without extensive planning or long-term considerations. In contrast, procurement is strategic and involves a comprehensive, long-term approach to sourcing, negotiating, and managing supplier relationships.

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To clarify the differences between purchasing and procurement, let’s break each down into categories:

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‍Both purchasing and procurement get your organization the goods and services it needs to function well. But while purchasing may be an easier, faster process, it often leaves behind a great deal of long-term value that your company can only realize through procurement. 

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Let’s further clarify the differences between purchasing and procurement by looking at them from a few different perspectives.

Strategic vs. transactional

One way to explain the key difference between purchasing and procurement is to describe purchasing as transactional while procurement is strategic. 

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Purchasing is task-oriented, and your goal with purchasing is short-term: to obtain the goods or services needed in exchange for money. That’s it. 

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Procurement, in contrast, is strategic because you also have the longer-term goal of obtaining the best possible value. This means that the quality, terms, and cost must all be as beneficial as possible for your company. 

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Meeting the loftier goals of procurement requires implementing a strategy, rather than simply exchanging money for goods and services and calling it a day like in purchasing. 

Scope and complexity

Purchasing is a simple process of selecting a supplier and purchasing the goods or services your company needs. 

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Procurement involves implementing a strategy to meet your goal of obtaining the best value. That’s why procurement is much wider in scope than purchasing and much more complex. 

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Unlike purchasing, procurement requires doing research to determine who the best vendor would be for your needs. It also requires negotiating the best terms as well as implementing a structured process that includes purchase order (PO) creation, inspection of the product, and verification that all is satisfactory before issuing payment.  

Process integration and vendor relationships

With purchasing, there isn’t a process to worry about integrating. If you simply buy a product or service from whoever you want as needed, there aren’t any formal steps you’ll need to follow.

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Procurement, on the other hand, involves following a set process to reach your goals, so you’ll want to integrate that process into an easily repeatable workflow. While it’s possible to follow the steps of the procurement process manually, we’ll explain a bit later how e-procurement solutions like procurement software can greatly simplify every aspect of the process. 

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A streamlined procurement process is also highly beneficial to your vendor relationships. It helps ensure clear communication, visibility into the process, and prompt payment. 

Impact on business goals

Purchasing ensures that your employees will have the items and services they need when they need them to perform their roles effectively. The impact that has on your bottom line will vary depending on the type of business as well as with each type of purchase. 

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If your business sells to customers directly, purchasing can ensure that your business doesn’t miss out on sales because of out-of-stock inventory. It can also result in happier customers and better reviews if your employees have everything they need to provide the best service possible. 

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Meanwhile, procurement ensures all of that while also ensuring that your company is saving as much money and time as possible in the process. Realizing these savings in addition to meeting the need for goods or services means procurement has a much greater impact on meeting your business’s goals than purchasing does. 

So what’s more important, procurement or purchasing?

While buying ensures the availability of needed goods and services, procurement contributes to the organization's long-term success by optimizing supplier relationships, reducing costs, and improving overall performance.

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If you do a low volume of business, your needs aren’t complex, and the prices of the few goods or services you need don’t vary much, then your business may benefit from the simplicity of purchasing and may not have much to gain from a full procurement process. 

How are e-procurement solutions related to procurement and purchasing?

E-procurement is the use of digital platforms and tools to manage procurement and purchasing. An increasing number of businesses are switching from manual procurement and buying processes to e-procurement to increase speed and efficiency and save time and money. 

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Procurement automation software streamlines procurement so that your team can realize all the benefits of a robust procurement process without all the manual, repetitive tasks they might not have time for. It effectively bridges the gap between strategy and execution.

How automation transforms procurement and purchasing

A few advantages of automating your purchasing and procurement process include:

• Faster and more accurate POs: Automatically generated and routed POs eliminate the errors that can happen during manual data entry and save time 
• Enhanced supplier management: All your vendor data is easily accessible in a centralized platform 
• Reduced costs and increased savings: You may be able to eliminate other software and accounting help. You can also see savings opportunities like unused subscriptions.  
• Streamlined invoice processing and payments: You can scan or upload invoices rather than entering them manually and automate approval workflows and matching 
• Real-time inventory and demand forecasting: Complete visibility into your inventory now and across time helps take the guesswork out of predicting your needs and managing cash flow

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Key e-procurement software features like AI-powered analytics, automated approval chains, and supplier lifecycle management can help your team achieve these goals seamlessly.

Optimize your purchasing and procurement with Ramp 

Purchasing and procurement both get your company the goods and services it needs to function effectively. But procurement does so in a way that emphasizes getting the best value possible from every transaction and is therefore a more complex process with greater long-term benefits.

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A lot goes into procurement, but it doesn’t have to be a lot of work. Ramp Procurement simplifies the procurement process, automating manual tasks and helping your team meet your broader organizational goals of saving time and money. 

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With Ramp Procurement, you get:

• Simplified document intake: Simply scan or upload documents instead of spending time on manual data entry
• Automated workflows: Requests for new products and approvals can be routed to the right department automatically based on purchase type
• Centralized communication: Procurement conversations are centralized and easily accessible in one place rather than scattered around Slack, email, or notes from phone calls 
• Actionable insights and savings: Use Ramp Intelligence and AI tools to compare vendor quotes, optimize contracts, and save money on things like unused software licenses or subscriptions

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Find out how Ramp Procurement can help your company meet its procurement goals.