The best way to understand the difference between procurement and purchasing in a business is to consider the process involved in buying a car, says Logistics Bureau’s procurement specialist, Trent Morris.

This is a question I get asked surprisingly often, and it’s a fair one. The two terms get used interchangeably in a lot of organisations, which creates confusion about roles, responsibilities, and where different activities should sit within a company structure. Getting clear on the distinction matters, because it affects how you organise your teams and where you focus your improvement efforts.

Procurement First, Purchasing Follows

Procurement: If you’re going to buy a new car, you usually decide what you want before you step out into the street. You consider, for example, the number of seats you want in the vehicle and whether you want a 4-wheel drive, a sedan, or an SUV.

Then you start looking at all the manufacturers and what they have to offer. Once you have done that, you move into getting prices on the vehicles.

The first part, where you are doing research into the industry, that’s procurement. It’s understanding how much you want to spend, the type of car you want, and how many seats you need. It’s looking at what’s available on the market, the different suppliers, what their products are like, whether it matches your needs—it is not actually buying the product.

Purchasing: Once you know what you want, you go out and find what you want for the right price. But it’s not only the price. Sometimes it’s the service capability of the dealership. It could be the after-purchase service or the warranties that you are after. But all of those things become purchasing as opposed to procurement.

Note: Sometimes in smaller businesses, procurement and purchasing might be the same thing.

Why the Distinction Actually Matters

I’ve worked with companies where this confusion has created real problems. A manufacturing business I consulted for had their purchasing team selecting new suppliers for critical components. The thing is, purchasing people are often excellent at negotiating prices and managing orders, but supplier selection requires a different skill set entirely. They ended up with a supplier who offered great pricing but couldn’t scale with demand. Six months later, they were scrambling.

The procurement function should be asking strategic questions: What does the supply market look like? Where are the risks? How do we ensure security of supply? What’s our total cost of ownership going to be over three years?

Purchasing is more operational: Can we get this order placed today? Is the pricing in line with our contract? Has the supplier confirmed delivery?

Both are essential. But they require different mindsets, and often different people.

The Link between Procurement and Purchasing

I would suggest that purchasing is a subset of procurement, in as much as procurement serves to guide the purchasing process.

A purchasing manager or purchasing officer typically won’t buy anything unless the contract has been set up by procurement, so in that way procurement and purchasing are linked.

Sometimes they are decentralised—an operations team may look after purchasing if they’re talking about widgets or something like that, but if you are talking about something more indirect, like travel, that may be governed by a centralised body.

In a small business, usually, it’s going to be a senior person or a director saying, we’re going to buy our widgets from this supplier, and negotiate the supply and prices and so on, and then an admin person or someone in purchasing actually does the buying.

Procurement typically has the authority on behalf of the business to engage with suppliers to make deals. The person who is executing those deals is the purchasing officer and would typically be a more junior resource to the business.

Now let’s look at another aspect of procurement.

Category Management

If you look at procurement as a function of the business, typically it will look after three separate parts of the business.

In simple terms, category management is the understanding of what you’re going to spend and how you’re going to spend it.

The way it works is as follows: A category manager would hand off to a sourcing team and the sourcing team would go out and set up the supply. They would then hand off to a supplier relationship management team, which would make sure the supplier is performing according to the requirements of the house.

Typically there are three categories at a very senior level:

Direct spend: This is the product sold to the market, such as raw materials, hardware, and components. In the fast-moving consumer goods (FMCG) space it could be the ingredients of the liquids, the tins, the bottles—anything that touches the product.

Indirect spend: This includes everything else that is used to get the product to market, either from a supply perspective or a demand perspective. This could include office furniture, equipment, and supplies, computers, and expenditure on maintenance and services needed for day-to-day operations.

IT and other information services: This is a complex environment on its own and requires specialist knowledge.

The Chain of Responsibility

Now we come to the all-important question: Where should procurement report to within the business structure?

There are two possibilities.

1. When the vast majority of a company’s spend is in the direct space, procurement would typically report to the Operations Director, who would want to understand the requirements around the capital employed, etc.
2. In a lot of organisations, however, procurement reports to the Chief Financial Officer.

Logically, the reporting responsibility straddles both of these teams. But who procurement reports to is not as important as the fact that it is required to engage with all parties to ensure that the money is being spent well, and the business is getting the value for money that they want.

Common Mistakes When Structuring These Functions

Over the years, I’ve seen a few patterns that tend to cause problems.

The first is treating purchasing as purely administrative. Yes, it’s more transactional than procurement, but good purchasing people catch errors, spot opportunities for consolidation, and maintain supplier relationships on a day-to-day basis. Undervalue them at your peril.

The second is having procurement operate in isolation from the business units they’re serving. A procurement team that doesn’t understand operations will make decisions that look good on paper but create headaches downstream. I remember a procurement manager who was proud of negotiating a 15% discount on packaging materials. What he hadn’t considered was that the new supplier’s minimum order quantities were three times higher than the previous one. The warehouse team was not impressed.

Third, and this is common in growing companies, is failing to formalise the handoff between procurement and purchasing. Someone negotiates a great contract, but the terms never get communicated properly to the people placing orders. Six months later, you discover you’ve been paying list price instead of your negotiated rate.

Getting a Job in Procurement

An easy way into procurement is simply to stick your hand up and say to the management team, ‘Yes, I’m interested in procurement.’ But make them understand that you want to go in at a point that you have had experience in.

Another way would be to come in at a more junior level, maybe through a graduate programme.

Let us take a quick look at the various jobs that are available in procurement:

1. Chief Procurement Officer

The CPO has overall responsibility for the purchase of components and equipment, and for all procurement contracts. The team under the CPO will negotiate the prices, terms of delivery, and technical specifications of the contracts.

2. Procurement Analyst

The person holding this post is expected to forecast future costs of materials based on historical purchasing costs. In other words, be a boffin in data analysis. He or she should keep tabs on what is being spent, what materials are being bought, and who is supplying these materials.

3. Supplier Relationship Manager

As mentioned above, the Supplier Relationship Manager will make sure the supplier is performing according to the requirements of the contract. Ideally, the person holding this post should enjoy engaging with people and helping to get the best out of them.

In a Nutshell

The difference between procurement and purchasing can be understood using the analogy of buying a car. Procurement is looking at the market, all the different brands and their features, and which brand you might want to buy, and purchasing is going out, negotiating the deal, and buying the product.

If you’re trying to improve performance in either area, start by getting clear on which function you’re actually trying to fix. The solutions look quite different depending on whether your problem is strategic (procurement) or operational (purchasing).