Procurement vs. purchasing: Key concepts for smart business buying

Many people and businesses confuse procurement with purchasing or use the terms interchangeably. However, there are some major differences between the two processes—both of which are mission-critical when it comes to managing risks, saving money, and fueling smarter decision-making. 

While the language mixup may not seem like a big deal, understanding the differences between purchasing and procurement can give you an upper hand in using both processes to improve your company’s cash flow. Learning to align your short- and long-term purchasing strategies can also lead to better business forecasting, stronger supplier relationships, and more efficient spend management.

Procurement vs. purchasing

Procurement and purchasing are both processes businesses use when buying goods and services. While each plays a major role in supply chain management, they differ in scope, focus, and duration. Specifically, the purchasing process is a subset of the broader procurement process that focuses on the transactional activities involved in acquiring goods and services. 

Some of the key differences between procurement and purchasing include:

• Value vs. cost consideration: Procurement evaluates the overall value creation of the purchase rather than just the price, while purchasing focuses more on achieving the best price for a specific and immediate purchase.
• Strategic vs. tactical approach: Procurement focuses on the bigger picture and overarching “why” when it comes to purchasing decisions, while purchasing takes a more tactical approach, focusing on the “how” and “when” of meeting specific goals.
• Supplier relationship management: Procurement teams strive to maintain strategic vendor relationships to access the most favorable contract terms and pricing, while purchasers often use different vendors for goods and services based on immediate organizational needs.
• Process scope: Procurement is an ongoing cycle without a specific start or end, while the purchasing process ends once a single purchase is made.
• Risk management: Procurement focuses more heavily on risk management because it’s aligned with the company’s long-term goals, while purchasing prioritizes meeting the needs of short-term goals.

What is procurement?

Procurement is the strategic process of sourcing and buying goods and services that help your organization function. It provides businesses with the raw materials they need to build products and support daily operations.

The essential function of procurement goes beyond simply buying goods and services. Strategic procurement is an extended, data-driven process that focuses on creating long-term value by aligning spending with the company’s corporate strategy. It does this by minimizing supply chain risks, optimizing costs, and building beneficial supplier relationships.

Types of procurement 

You can categorize procurement into different types based on what is being purchased and how the purchase is being used. The most common types of procurement include:

• Direct procurement: Direct procurement is the acquisition of goods used directly in your organization’s end products or services.

  • Examples: Wood used for construction, machinery used in production, oils used during a massage

• Indirect procurement: This procurement type refers to goods and services that support your company’s operations but aren’t directly involved in your core products or services.

  • Examples: Office supplies, waste management services, business facilities

• Goods procurement: Goods procurement encompasses any purchases of physical products and some non-tangible products, such as software.

  • Examples: Office chairs, equipment, packaging materials

• Services procurement: This type of procurement refers to any services purchased to support your business.

  • Examples: IT services, maintenance crews, HR recruiters

Many organizations now also use a type of procurement known as e-procurement, which involves buying business goods and services online. Aside from convenience, e-procurement software also provides real-time analytics that monitor spending patterns and supplier performance. According to a 2024 survey by Statista, 65% of procurement decision-makers use procurement reporting or analytics tools to drive efficiency objectives.

Goals and key activities 

Because every company has its own unique way of doing business, the procurement process often varies between organizations. However, almost every company uses the following key steps as part of procurement:

• Business needs analysis: The procurement cycle begins when someone within an organization identifies a company need and submits a request for approval.

• Strategic sourcing: Once approved, the procurement department identifies the best potential suppliers based on research and pricing.

• Contract negotiation: The procurement team then negotiates favorable terms with the chosen supplier until all parties agree on a final contract.

• Purchasing: The buyer creates a purchase order—a formal offer detailing exact pricing, items, and quantities—and completes the purchase.

• Quality control: The buyer receives and inspects ordered items to ensure they meet specifications.

• Vendor management: After a positive experience, the procurement officer often maintains a relationship with the supplier to get more favorable terms and pricing in the future.

Purchasing as a function of procurement

Purchasing is a part of procurement that encompasses the transactional activities involved in buying goods and services during the procurement cycle. Within your overall procurement strategy, purchasing can help you manage spending and supplier selection for smaller, one-off purchases that add up over time. 

Key activities

The purchasing management process starts about midway through the procurement process. A few common components of purchasing include:

• Submitting a purchase request: Purchasing often starts with a purchase requisition, which is a formal internal request for approval to make a purchase on the company’s behalf.

• Securing approval: One or more internal stakeholders may need to approve the purchase before the process can proceed, ensuring the purchase is compliant and within budget.

• Selecting a vendor: The purchasing department researches the best vendors for the job based on cost, delivery timelines, payment terms, and other requirements outlined in the purchase requisition.

• Making and receiving the purchase: The purchaser makes the purchase, and the organization receives and inspects the goods or services.

• Processing payment: The purchasing department processes the payment through accounts payable and keeps records as needed.

9 Tactical procurement and purchasing strategies

To optimize your procurement process, begin by tapping into common strategies in both the procurement and purchasing realms. Here are a few examples to help get you started.

Core procurement strategies

Your company's goals, such as cutting costs or improving your carbon footprint, will drive your primary procurement strategies. Some of the most common procurement strategies include:

• Cost reduction: This is a broad term that includes any procurement strategy aimed at lowering costs to increase profit margin. Some examples of cost reduction strategies include asking suppliers for discounts, consolidating vendors, and embracing technology to automate time-consuming manual processes.

• Global sourcing: Sourcing goods and services from suppliers around the world expands your purchasing options and price range. Diversifying your supplier base through global sourcing may also aid in risk mitigation.

• Green purchasing: This procurement strategy integrates environmental considerations into buying decisions to prioritize sustainability. By selecting more eco-friendly products and services, companies can improve their market perception and gain a competitive advantage while minimizing their environmental impact.

• Strategic sourcing: This long-term strategy focuses on building strong supplier relationships and continually reevaluating markets to help your organization achieve the best overall value.

• Digital transformation: Digitizing your procurement process—including using tools like AI and automation—can help you drive greater efficiency, improve compliance, reduce costs, and manage risks. According to Gartner, sourcing and procurement leaders cited a 69% increase in the importance of data and technology competency in the field over the past year.

Tactical purchasing strategies

While your purchasing strategies depend on your company’s goals, some standard tactical strategies for optimizing the purchasing process include:

• Using centralized purchasing: Create more control over your company’s purchasing by requiring all purchases to go through a centralized purchasing department.

• Or, using decentralized purchasing: Allow department or facility leaders to make purchases for their team in instances where it's more efficient and speeds up the process.

• Understanding key costs: Ensure all stakeholders understand key metrics that might impact their purchase, such as the inventory carrying costs associated with storing extra supplies.

• Focusing on vendor development: Partner with suppliers committed to continuously improving their offerings. For example, vendors that reduce production costs and related product prices can save you money, while suppliers that enhance quality without increasing costs can improve your core product.

Before diving too deeply into any one strategy, make sure your organization has solid procurement goals in place so you can target the areas with the highest potential for impact.

Procurement and purchasing alignment strategies for business success

Because procurement and purchasing are part of the same process, you shouldn't think of them in silos. Considering the two together and aligning both strategies with long-term business goals can profoundly impact your business’s bottom line.

If your company is facing procurement challenges, here are three ways to align these essential business processes.

1. Integrate procurement and purchasing for better decision-making

Having a way to see all of your company’s spending in one place makes it easier to get a big-picture view of necessary changes. While many e-procurement tools can increase visibility into your direct purchasing, indirect purchasing tends to be distributed throughout the organization. Integrating the two can provide access into real-time spending information throughout the entire procurement cycle, giving you the granular data you need to make better buying decisions.

2. Manage supplier collaboration and contracts

Aligning your procurement and purchasing strategies can also help you make more strategic decisions when it comes to vendor selection and contract management.

Instead of considering any vendor for low-cost, immediate purchases, consider creating a master list of preferred suppliers you can turn to for both large and small orders. This helps your organization continue to build supplier partnerships while also decreasing the risk associated with using one-time vendors.

3. Automate and standardize procurement workflows

Tech and automation reduce the labor hours necessary for the procurement cycle, resulting in cost savings. AI is already being used to generate supplier recommendations, analyze contract risks, and manage basic vendor communication—and its role in procurement is only expected to grow.

Overhaul your procurement and purchasing strategy

Coordinating your procurement and purchasing strategies comes with critical benefits like significant cost savings, better supplier relationships, and greater alignment with your organization’s overall operating strategy. Using an e-procurement system places even more control in your hands by giving you the data you need to adjust course quicker and more efficiently.

HAQM Business is a smart business buying solution that bridges the gap between tactical purchasing and strategic procurement. With HAQM Business, you can align strategic procurement with efficient purchasing through automated workflows, supplier insights, and spend analytics to streamline buying power.

Sign up for free today or talk to sales to optimize your procurement function.