What is The Difference Between

Procurement And Purchasing

Learning Objectives
Explain the difference between Procurement and Purchasing
Explain Supply Chain Management
Explain Inventory Management
Differentiate between Supply vs Supplier
Differentiate between Make vs Buy

2
 People often use the
terms purchasing & procurement
interchangeably
 But even though they sound
similar, theyre definitely different
Whats the difference ?
Purchasing and Procurement -
YouTube[via torchbrowser.com].mp4
 Procurement is concerned with acquiring (procuring) all of the
goods, services and work that is vital to an organization.

Procurement is all third-party sourcing activities at strategic and

operational levels including the actual purchase of goods and
services; the aim is to ensure minimum total cost of ownership
(TCO).

Definition - Process to acquire goods or services with aim to

achieve minimum total cost of ownership (TCO).

TCO - move from a best price mentality to a best offer

mentality
Total Cost of Ownership

TCO
Costs of the supplier management
project costs
ongoing support costs
Quality costs
rework
inspection costs Engineering Costs
expedition transfers (re-routing?) technical support
missed coverage contributions tool costs
additional processing
Logistics Costs
Costs of payment transfers freight
cash discounts order processing
customs delivery methods
rebates storage handling
surcharges packaging
waste disposal
Tender Price
2013 Holcim Ltd 7
Purchasing is the systematic process of deciding
what, when and how much to purchase; the act of
purchasing it; and the process of ensuring that what is
required is received on time in the quantity and quality
specified.

Purchasing is a part of procurement

Procurement is considered a core part of any
organizations corporate strategy
Explain the difference between Procurement
and Purchasing using Iceberg model
The price/cost iceberg
 The Challenge: A large portion of the total
procurement costs are not noticed.

Procurement Costs Transaction

Costs
Traditional

Price Noticeable Procurement

Transporta- Costs
tion Costs
Customs
Tool Costs
Costs for Requirement
Planning
Additional Procurement

Disposal Costs Opportunity Costs Additional, often hidden,

Re-Work Costs costs from the supplier
Costs for possible
Costs

Image Costs (when

product recalls problems arise)
Operating Costs (i.e.
Power) Defective Parts Returns Costs for Start-Up,
Maintenance, Repair
Setup Costs
Check !
Ordering a pizza- Purchasing or Procurement ?
https://www.youtube.com/watch?v=Hjk55TpBfcM

Purchase of I-phone 6 by UniKL student - Purchasing or

Procurement?

Import of raw material from overseas?

 What is the history and trend in Procurement
management ?

Prior 1970s, top management viewed procurement management

as a purchasing activity and having a passive role in the business
organization.
It was slowly evolved from supportive role to strategic role as part
of the company corporate strategy mainly due to increasing in the
awareness of Supply Chain Management
UniKL 15
..where knowledge is applied
Remember! Purchasing is a process within
the overarching procurement process.
Reference
Peter Baily, David Farmer, Barry Crocker, David Jessop, David Jones,
Procurement, Principles and Management, Eleventh edition,
Pearson Education Limited 2015.
Kenneth Lysons, Brian Farrington, Purchasing and Supply Chain
Management, Eighth edition, Pearson Education Limited 2012
Group Presentation
What is the difference between Purchase Good and Purchase
Service?