Procurement vs. Purchasing and ERP’s Role

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In the dynamic manufacturing world, procurement and purchasing are two terms that are often used interchangeably. Understanding the difference between purchasing and procurement is critical for manufacturers to manage their supply chain processes effectively.

What is Procurement?

Procurement includes acquiring goods and services, identifying needs, choosing suppliers, and managing and negotiating terms. Here are the steps of procurement:

  1. Identify the goods and services that the manufacturer requires
  2. Submit a purchase request
  3. Assess and select vendors
  4. Negotiate prices and terms of purchase
  5. Create the purchase order
  6. Receive and inspect the ordered goods
  7. Approve the invoice and arrange payment

What is Purchasing?

Purchasing is a subset of the procurement process, which refers to buying the required goods or services from the supplier. This process ensures that the goods are purchased within the budget and timeframe. The following are the steps in the purchasing process:

  1. Receive and evaluate the purchase requisition
  2. Raise and process a purchase order
  3. Process and organize payment with the supplier

What is the role of Enterprise Resource Planning software in the procurement and purchasing process?

An ERP system ensures process automation while providing businesses with advanced real-time data, reporting, and analysis tools. ERP eases the coordination between accounting, purchasing, and sales. And, when you have one platform storing all of the business data, it is more accurate. ERP automates the procurement process while setting up a systematic way of working.

Let’s see how ERP helps streamline the procurement process:

  1. ERP ensures synchronization of goods receipt and inventory in the warehouse. It provides a user-friendly interface to manage and centralize the purchasing process.
  2. It helps process accounts payable transactions with a PO reference to plan for and purchase the required raw materials.
  3. It generates integrated reports with real-time data to gain an overview in various formats.
  4. With ERP, you can request quotes, create purchase requests, and pay vendors systematically.
  5. ERP helps in tracking costs. It gives insight into costs while considering shipping fees, taxes, and other necessary expenses to meet your financial objectives.
  6. ERP generates reports automatically. This saves time and money and provides greater insight to improve financial growth.

The procurement and purchasing processes are interconnected elements within the supply chain, with procurement assuming a more comprehensive, strategic planning function for a business. Purchasing, on the other hand, is dedicated to addressing the daily requirements of the company. ERP software helps to streamline the procurement process for a more effective supply chain.

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