Video Summary
Understanding the Fine Line Between Procurement and Purchasing
Introduction
One of the most frequently asked questions in the realm of business operations is the distinction between procurement and purchasing. Let’s delve into this topic and explore the differences with an expert in the field.
Understanding the Fine Line Between Procurement and Purchasing
- One of the most frequently asked questions in the realm of business operations is the distinction between procurement and purchasing. This query often arises on various platforms, including YouTube channels and blogs. Today, we delve into this topic with Trent Morris, an expert in procurement due to his extensive experience in both procurement and purchasing roles. Trent has worked for renowned companies such as Jim Beam and Coca-Cola Anatol, where he honed his skills in managing procurement processes. When it comes to differentiating procurement from purchasing, Trent offers a valuable analogy by likening it to buying a new car. He explains that when purchasing a car, you first determine your specific requirements, such as the number of seats, the type of vehicle (sedan, SUV, etc.), and other preferences before exploring different manufacturers and their offerings.
Exploring the Differences Between Procurement and Purchasing
- When it comes to acquiring vehicles, the process starts with extensive research and understanding of the industry. This initial phase involves determining how much you are willing to spend, the specific type of car you need, the required number of seats, and other essential factors. Essentially, it is about evaluating the market offerings, different suppliers, and their product ranges to see if they align with your criteria. However, this phase does not involve the actual purchase. It is more about knowing what you want. Once you have a clear idea of your requirements, you can then proceed to find the right vehicle at the right price. This step also involves considering additional factors such as the dealership’s service capabilities, aftermarket services, and warranties. These considerations mark the transition from procurement to purchasing. While procurement focuses on the initial research and decision-making process, purchasing involves the actual acquisition of the product. In many cases, procurement sets the guidelines for purchasing. For instance, a purchasing manager may not finalize a deal without procurement’s input on contract negotiation. Although in smaller businesses, procurement and purchasing may be handled by the same individual, they serve distinct functions within the overall acquisition process.
The Role of Procurement in Small Businesses
- Procurement in small businesses is often overseen by a centralized body or individual, particularly in smaller organizations. In such cases, a senior person, typically the director, is responsible for making decisions on purchasing supplies from specific suppliers and negotiating deals. The actual execution of these deals, including buying the products, is usually carried out by an administrative person or someone in the purchasing department. Category management and supplier relationship management are essential aspects of procurement but serve different purposes. Category management involves understanding and planning for the business’s spending, while supplier relationship management ensures that suppliers comply with the business’s requirements and expectations.
The Three Categories of Procurement at a Senior Level
- When it comes to procurement at a senior level, there are three distinct categories to consider. The first category is direct procurement, which involves the products that are sold to the market. In the FMCG sector, this could include the ingredients, packaging, and everything else that directly impacts the product. The second category is indirect procurement, which encompasses everything else that is necessary to bring the product to market, whether from a supply chain or demand perspective. Lastly, there is IT procurement, which is often separated due to its complexity and the specialized knowledge required. The question of where procurement should report within a business structure is a common one. Some organizations place it under the Operations Director, especially if a large portion of the spend is in the direct procurement area. On the other hand, in many companies, procurement falls under the CFO. Ideally, procurement should straddle both teams, ensuring it engages with all parties to optimize spending and drive value for the business.
The Art of Procurement: Finding Value in Supplier Relationships
- In my experience, I have found procurement to be a fulfilling role within the supply chain. While I have had various roles, procurement stands out as one of my favorites. Personally, I derive great satisfaction from supplier relationship management - the art of engaging with people to bring out the best in them and ensure that we are receiving value for our money. Engaging with suppliers, negotiating deals, and optimizing relationships is a skill that I have honed over the years. My entry point into procurement was through my extensive experience in logistics, which provided a smooth transition. For those looking to enter the field, expressing interest in procurement to your management team is a good starting point. Starting at a more junior level or through a graduate program is also a common pathway. Understanding the distinction between procurement and purchasing is essential. Procurement involves evaluating the market, different brands, and their features to make informed decisions, while purchasing is the act of negotiating and finalizing the transaction. It’s akin to researching various car brands before making the purchase. Stay tuned for more insightful content every Wednesday!
Conclusion
Understanding the nuanced differences between procurement and purchasing is essential for optimizing business operations. Stay informed and make informed decisions in your procurement processes.