What is the difference between Procurement, Purchasing and Sourcing

difference between Procurement , Purchasing and Sourcing

difference between Procurement , Purchasing and Sourcing

The most challenging task for a Procurement professional is getting his procurement terminology right in order to define his scope of work. The pain area is, these terms are often used interchangeably. Though it’s a fact that these terms mean the same, but the can’t be used interchangeably.

One of the very good examples of this is “ Purchasing”, the term Purchasing is used as a synonym to procurement but, holds a different meaning altogether under procurement industry. As a result, such variations can hinder the effective communications among the businesses.

The concern at the top level is unless we understand the basics of procurement, we wouldn’t be able to effectively communicate our scope of work. So, here in this article, We pen down some key terms or Procurement concepts that would help you get your procurement terminology right.

We start with defining Procurement; What is Procurement?

Procurement is a business management function. Procurement is essentially an acquisition of products and services, especially for the business purpose. It covers a complete range of activities from identifying the need of goods and services to its allotment. In a more broader sense if we talk, Procurement involves activities like;

1)Selecting vendors
2)Establishing payment terms
3)Negotiating Contracts
4)Regulatory compliance
5)Analysis and sourcing

Thus, procurement is an umbrella term under which Purchasing is just a component. Since procurement is an umbrella term and includes all the core business activities, it should be considered an important corporate activity.

Coming to Purchasing, Purchasing is a subset of Procurement. Though these terms are being used interchangeably they mean different. Purchasing simply involves buying and selling of the goods and services. Purchasing is only restricted to receiving and making payments. Purchasing can be best known as the transaction-oriented function of Procurement.

Sourcing, as the name implies, is a finding a source from where the goods and services can be procured. It is a subsection of the procurement, where, procurement is concerned with acquiring of goods and services, sourcing is finding a least expensive supplier for those goods. Since the business profits heavily rely on finding the best source of suppliers it is considered to be the first step taken by the business before its first sale.

These are the some of the basic concepts of the procurement used in the business world and by getting a fair idea of the differences in the procurement terminology, will help us enhance the understand ability of the procurement industry and stop letting us from using these terms interchangeably to avoid any miscommunication.

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