Purchasing vs Procurement Revisited

purchasing-and-procurementThe terms purchasing and procurement are often used interchangeably by people who cannot distinguish their meanings. If you google for “purchasing procurement”, there are millions of hits. Despite the best efforts by the authors, after reading a few of the articles, the meaning of purchasing and procurement may slowly merge. The problem is that both activities contain many common processes such as tendering, vendor selection, contract negotiation and so on.

Instead of trying to define the two terms, we can look at some common assets and see if they are purchased or procured. The table below shows some of these common assets.

Type

Purchasing

Procurement

1

Bridges

You don’t purchase a bridge unless it is for the scrap metal of a discarded bridge. Bridges must be procured as each bridge has to be designed and constructed.

2

Building

You may purchase an existing building. New buildings have to be procured.

3

Car

You purchase a car or a fleet of cars.

4

Computers

You purchase computers.  You procure a made to order computer system.

5

Food

You purchase food.  A kitchen is procured.

6

Furniture

Ready-made or pre-designed furniture is purchased. Custom-designed furniture may have to be procured.

7

House

Houses from developers and used houses are purchased. Custom-designed houses have to be procured.

8

Machine

Ready-made or designed machines are purchased. Special purpose machines may be procured.

9

Marine vessels

Small work boats and utility vessels may be purchased. Larger vessels are normally procured.

10

Office equipment

Office equipment is normally purchased.  Some office automation systems are procured.

11

Office supplies

Office supplies are purchased. Printed papers with letter heads have to be procured.

12

Raw materials

Raw materials are purchased, even in large quantities.

13

Roads

Roads have to be designed and constructed.

14

Services

Services are normally procured.

15

Software

Off-the-shelf software is purchased. Special purpose software have to be procured.

To understand purchasing and procurement, we can compare the attributes and characteristics of the items in the table above.

The characteristics and attributes of the purchased items would include the following, among others:

  1. the items already exist or are pre-designed, e.g. cars, houses, office equipment.
  2. the items are sold as is or after minimal processing, e.g. raw materials.
  3. the specifications for the products are based on what is commercially available.

On the other hand, the characteristics and attributes of the procured items would include the following among others:

  1. The items do not exist and have to be created. They have to be designed to a specification based on the requirements of the users.
  2. Professionals like architects, engineers, surveyors, interior designers and other specialists may be required to help define, design and construct the items.
  3. Services from consultants and other service providers must meet the requirements specified. The delivery of the services must be monitored to ensure that they fulfill the contract.

Based on the above, the skills and knowledge required for a purchasing officer and the procurement officer are vastly different. The purchasing officer needs to know his market, the range of products available, prices, quality, special features and so on. He also needs to know the warranties, maintenance and support and volume discounts provided. Value for money is important in purchasing. Today, with the web, they have to be Internet savvy in searching for products and prices.

The procurement officer has to work with the technical specialists in producing the tender documents and the contracts. The procurement process needs to be planned. While the technical specialist are conversant with the technical specifications, the procurement officer have to complement them with the commercial and financial terms. Project managers may also need to be appointed to ensure that the project is properly implemented.

The Malaysian Auditor General’s report often raise poor requirements and specifications as procurement issues. The procurement office can help address this problem by providing templates and guidelines for writing the requirements and specifications. These templates and guidelines may have to be developed with experienced project managers.

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