Getting the procurement terminology right can prove to be quite a challenge for a procurement professional while defining the scope of his work. The fact that many a time, the terms are used interchangeably even though they might not mean the same in the ambit of procurement processes; does not reflect well and may hinder communication in a business network.
Unless we understand the basics of procurement, effective communication in the supply chain will not be possible. So, in this article, we will talk about some key procurement terms, that will be quite beneficial for you, to get your procurement terminology right.
Let’s begin with defining the key concept – ‘What is Procurement?’
Essentially a business-management function, procurement, is the acquisition of goods and services for business purposes. Covering a complete range of activities ranging from identification of products and services to create purchase orders, to its allotment and invoice processing; if we take things in a broader sense, Procurement involves the following activities:
- Selection of Vendors
- Establishment of procurement to pay systems
- Negotiation of contracts
- Regulatory compliance
- Sourcing and Analysis
A great example of confusing and misleading interchanging of terminology is that of the word ‘Purchasing’ and ‘Procurement’. Even though you may come across people using the term purchasing and procuring rather liberally interchangeably, but one must know that purchasing is just a subset of the wider umbrella term – Procurement. Wherein purchasing is restricted to receiving goods and the pay-process; it can also be looked upon as a transaction-based function of procurement.
Coming to the second term – ‘Sourcing’. As implied by the name, sourcing, is the process of finding a source from where the procurement of goods and services can be made. The first step for beginning the purchasing process, sourcing also involves finding the least expensive supplier for the needed goods, thus being an important contributive factor, for cost-savings and managing the cash flow.
These are few of the most basic procurement concepts, when it comes to the differences, in procurement terminology. Tell us more about other terms that need to be stopped from being used interchangeably, so as to avoid miscommunication. Write to us in the comments section below and we shall try to talk about more procurement terminologies, in our future posts.