Although both procurement and purchasing convey a similar meaning, using these two terms under different situations can often create confusion in the commercial circle. Therefore, it is essential to understand both these terms a little more elaborately.
When in the commercial transaction, the word ‘procurement’ is used then it conveys more about ‘acquiring’ the items in question and then putting value over cost. On the other hand, when we use the term ‘purchasing’ then we mean that we are ‘buying’ wholesale goods at a certain cost.
In the business circle, particularly when we are involved in international business both these terms will have their own significance and commercial people must be well aware of them while negotiating the deal.
When you are sourcing from China a certain product, then while negotiating with your sourcing agent, you should choose your word carefully so that no confusion may get created in your deal.
In business what do we mean by purchasing?
When we use the term purchasing then it involves the process of obtaining any goods/services for any business or organization. We may define purchasing by taking a few steps that are associated with the total execution of the transaction between a supplier and a buyer.
It is considered as a part of the whole procurement process where an order will be placed and that will end with receiving the order.
What is procurement in business?
When we use the term procurement then we refer to the whole process of sourcing any services/goods, commercial negotiation, and also the selection of any services/goods.
Procurement will include a few series of steps and will conclude in the sourcing of goods/services successfully. While purchasing is just one part of the procurement steps.
Procurement will follow a well-structured method for achieving the desired results. It will involve many people and may take a longer time to complete. When we are sourcing from China then we will be procuring the goods/services from China.
Steps involved in the process of the purchasing
The following are the steps involved while purchasing
- Placing an order
Through this process, you will get connected with the vendor. Once all the doubts are cleared and agreeing upon the price, you can buy your goods from a vendor. You need to place an order for the required goods/services.
Payments are to be settled as per the agreed payment terms.
- Order tracking
You cannot rest just by placing your order. It is necessary to track the order regularly and check the status of delivery to remain updated. Regular order tracking will help you to avoid any surprise and can save you any scam or sudden mishap.
- Order receiving and then auditing the entire order
After you have received your items, you must inspect them thoroughly for any issues. You need to ensure that you have received the right item of the right quality and quantity.
If any discrepancies are noticed then the same may be notified to the supplier immediately.
- Making payment once you are satisfied
Your final step will be the payment to the vendor for your procurement. Your payment amount and method will be as discussed between you and your vendor. After clearing your payments, the purchasing process will be complete.
Steps for the procurement process
As mentioned before while sourcing from China the procurement process will be involved where the following few well-defined steps will be undertaken.
- Recognizing your company needs
You have to first recognize what good/service is needed, which is very important and your planning will start from here. This will help you to structure your total procurement plan.
Having a proper plan will enable you to procure any high-quality goods/services at a lower cost within any time frame.
- Making your purchase requisitions
Your next step will be making necessary purchase requisition. It will initiate the practical procurement work.
A purchase requisition will highlight all the details of goods/services required, their quantity, and price range, along with all other necessary details.
- Reviewing of the purchase requisitions made
When the purchase requisition is raised then it has to be approved by the respective functional heads who will decide whether the indented goods and services are needed or not.
Only the approved purchase requisitions will be processed and orders will be placed while rejected ones will be sent back. This review will help in managing the budget effectively.
- Starting the solicitation process
The procurement team will plan out a proper procurement plan and also the corresponding solicitation process after receiving the purchase order forwarded after buying requisition. When making a plan, the budget is taken into account.
Once satisfied, the procurement team sends many quotation requests to vendors. Vendors submit bids after getting the request.
- Evaluating and making a proper contract
Vendors bid on the project and submit quotations to the procurement officer after the solicitation process is officially closed. All vendor quotations are analysed, and the best one both in terms of price and quality is chosen.
The procurement officer then negotiates a contract with the vendor. The seller is notified of the purchase order. After the vendor accepts the purchase order, the legal contract begins.
- Managing the entire order
The vendor prepares and transmits the items to the procurement team when the contract is signed. The procurement staff inspects and analyses all of the commodities.
The recipient approves the items if they are completely up to par and arrive on time. Otherwise, the vendor is consulted about the issues, and the process continues.
- Approving invoices
If all of the products and services delivered were satisfactory, invoice approval triggers payment. Disputes are initiated in the event of major defaults. The provider may compensate you or the contract may be terminated as a result of the dispute.
Because procurement is usually done for the long term, the organisers choose just the best suppliers or vendors and reject the others.
- Record keeping
Keeping records is a good practice that will aid the procurement team in the event of a future dispute. All essential documents are retained for future reference while recording.
While sourcing from China you need to follow all the above steps. With these steps, your complete procurement action will be completed.
