Though both entail the acquisition of products and services for an organization, purchasing and procurement are, in fact, two separate functions with very distinct objectives. Understanding the difference between the two processes can result in impactful change for your organization and how it functions.
In this post, we’ll explore the differences between procurement and purchasing, look at how purchasing works within the broader procurement process, and we’ll identify some of the complexities that influence the public sector, specifically municipalities, as you engage in the procurement process. This post also aims to open the conversation and learning to a world where buying goods and services is strategic, multi-year focused and driven by goals for efficiency as well as value for money, rather than focused on short-term buying needs.
Defining Procurement and Purchasing for the Public Sector
A lack of standardized definitions for these two terms means that different organizations often use different definitions, interpretations, and approaches – leading to further confusion across the public sector. As the supply chain management framework continues to evolve, the boundaries between purchasing and procurement continue to blur, making it even more difficult to distinguish between the two processes.
Let’s clear things up with this primer on the difference between procurement and purchasing.
|A broad term that encompasses all the activities involved in acquiring products and services, including but not limited to purchasing. Procurement is the strategic development and management of the supply chain.|
A strategic public supply chain aligns with, and supports, an organization’s mission and values while also advancing applicable Legislations, Acts and Directives.
|A specific activity within the broader process of procurement. It refers to the act of buying products and services.|
|Focuses on protecting an uninterrupted supply chain, overall process and not just the transaction. Procurement is about looking at the full and circular life cycle of the products and services required.||Focuses on typical daily activities of buying products and services, seeking suppliers, seeking quotes, identifying and evaluating suppliers, negotiating prices and terms, and finalizing the transaction.|
|Includes activities such as strategic sourcing, supplier management, spend analysis, education, training and contract management.||Typically does not include activities such as strategic sourcing, supplier management, spend analysis, and contract management.|
|Involves making strategic decisions about the overall procurement process.||Involves making tactical decisions about specific purchases.|
|Responsible for the overall strategy and management of an organization’s procurement activities.||Responsible for the day-to-day tasks associated with buying goods and services.|
|Puts more importance on an item’s overall value than its cost.||Tends to focus more on the item’s cost than its overall value.|
Bottom line: Purchasing is often addressed interchangeably with procurement because it is actually a small subset of a broader procurement function. Simply put, purchasing is a part of procurement.
Procurement considerations for municipalities
Municipalities have much to consider when defining the rules of engagement for internal and external procurement and purchasing processes.
For one, all municipalities are responsible for adopting and maintaining their own policies with respect to the procurement of products and services, including the development and maintenance of a procurement by-law. A solid by-law eliminates the gap in understanding between various procurement functions and can be useful in supporting departments with the resources they need to ensure confidence in the organization and its systems. A strong municipal procurement by-law includes details on fair, transparent and competitive procurement processes, training and education, operational procedures for the various types and phases of procurement, and policies around environmental, sustainable, diverse, inclusive and accessible procurement. In addition, recognition and support of cooperative procurement available through group purchasing organizations and collaborative buying with other municipalities and broader public sector and use of available provincial or federal agreements is an important consideration for a strong procurement by-law.
Other considerations that may influence how municipalities approach and manage procurement include budgets, staffing and approval processes for using funds to purchase goods and services, as well as judgement values and decision criteria related to environmental, social, and governance (ESG) mandates and policies.
Bottom line: Municipalities can work to improve and elevate their processes by:
- Standardizing definitions – establishing clear and consistent definitions for purchasing and procurement to ensure that all employees understand the distinction;
- Having definitive Procurement Policies and Purchasing Procedures in place;
- Further opening the conversation and learning to a world where buying goods and services is strategic, multi-year focused and driven by goals for efficiency as well as value for money;
- Investing in training and education;
- Increasing communication within the organization;
- Reviewing by-laws, processes, roles and responsibilities on an ongoing basis;
- And, engaging in collaboration across procurement and purchasing functions, both internally and externally.
Working with a collaborative procurement partner, such as OECM, can be a huge step forward for municipalities and other public sector organizations, big and small. Through OECM, customers gain access to a full-service offering that includes strategic sourcing, leveraged spend discounts unattainable individually, reduced staff workload, assured procurement compliance with various Acts, Legislations, Directives and Agreements, access to professional procurement expertise assisting with supplier management, spend analysis and contract management – all under one roof. And, with robust customer engagement processes and a dedicated customer support team, OECM ensures that your business requirements are always top of mind and driving procurement initiatives.
Want to know more? Join OECM’s live session, Procurement versus purchasing within the supply chain: Distinguishing the functions while enhancing collaboration, on Tuesday, May 16 at 11:30 am (EST) and explore the role of procurement versus purchasing within the supply chain, the need to distinguish between the two functions and more insights on how to enhance processes, communication and collaboration. It will also explore the building blocks of buying, while championing well thought out and proactive procurement.
This webinar event is hosted in collaboration with the Municipal Finance Officers’ Association (MFOA).