Purchasing & Procurement: Career Path and Salaries

What is the difference between Purchasing and Procurement?

In simple terms, procurement is the overall function of selecting and creating formal relationships with suppliers. Purchasing is the action of buying the goods within that overall procurement relationship. In some respects, procurement is the strategy, and purchasing is the transaction.

This is where the confusion between the two roles can arise. In a small company, one person (nominally called the Purchasing Manager) will likely fulfil the critical parts of both functions. However, as companies grow, so does the need to focus on the procurement process and create more strategic relationships. You will find separate procurement and purchasing teams working within the supply chain management department in a larger company.

What are the critical activities of a procurement team?

• Recognise a requirement - The procurement process begins when a need for a product or service is identified in the business. Procurement teams work closely with all the other functional departments, such as design and manufacturing. A good procurement team will be proactive in recognising the needs of the business.

• Research Suppliers – Depending on the volumes of products required, the suppliers may be local (i.e. in the same country) or anywhere else in the world. The team will create a long list of potential suppliers and carry out preliminary credit checks to ensure the financial stability of the suppliers.

• Request preliminary quotes – The procurement team will contact the suppliers on the long list and ask for initial quotes and product samples. As well as price the team will also consider other aspects of supply such as lead times, warranty periods, and industry reputation.

• Refine the list – The long list will be whittled down to a shortlist of suppliers. Depending on the type of business, the procurement team may organise site visits to perform a detailed supplier audit. During this audit, they will assess the supplier’s systems and processes, particularly their production and quality management procedures.

• Negotiate – From the supplier audit, the team select their preferred supplier or suppliers. They will then begin negotiations based on their projected volumes, delivery requirements, and payment terms. The agreed contract becomes the central document within the supplier relationship and will be passed to the purchasing team for use in the day-to-day transactions.

• Review products – When the shipments arrive from the supplier, the procurement team, will receive internal inspection reports from the quality department. If there is a quality issue, they will communicate this to the supplier and request a report on the corrective and preventative action the supplier has taken to avoid future reoccurrences.

• Analyse commercials – Monitoring and reporting on margins and profitability of purchased products is an essential, ongoing function of the purchasing team. They will feed this data into the finance department.

• Grow the relationship – Regular reviews and contact from the procurement team will help build a mutually beneficial supplier relationship. Having performed all the previous steps, it’s vital to maintain the source of supply and ensure the supplier is there to support the company in the future.

What are the critical activities of the purchasing team?

As shown above, the purchasing function sits in the procurement process.

The purchasing team handle the direct transactions with the supplier.

• Receive purchase requisition – Triggered by the internal stock control system or the production schedule; the purchasing team will receive a notification to acquire products. They will check the requisition against the supply contract to make sure everything is in order.

• Create purchase order – A purchase order is raised, detailing the quantities, prices, and due date. It’s sent through to the supplier to trigger their production.

• Check received goods – When the shipment arrives, the goods-inwards team will verify the physical shipment with the purchase order. The quality assurance team will perform a quality control check on the goods to verify they are correct to specification. Once checked, the purchasing team will be told that the order has arrived and is correct. 

• Authorise payment – Assuming everything is correct with the shipment, the purchasing team will collect all the documentation and pass it to the finance department to process the payment to the supplier.

Careers and salaries in procurement and purchasing

As you can see, procurement and purchasing activities are complex and varied.

There is a range of roles available in those departments, which will require a broad range of skills. Procurement and purchasing professionals usually demonstrate a high level of:

• Communication skills – they work across all the internal functions of the business and are closely linked to suppliers all over the world.
• Relationship management – procurement professionals are highly skilled in creating and developing robust relationships with internal staff and external suppliers.
• Negotiation skills – creating a win-win scenario for the company and supplier is key to a successful procurement function. Negotiation isn’t simply beating the supplier down on price. It’s about understanding both parties’ needs and wants then creating a deal everyone is happy to sign.
• Strategic thinking – the right supplier relationship can create enormous benefits for the company. Although cost is an essential factor to consider, it’s not the sole focus. An excellent supplier relationship can open doors to other avenues and business opportunities.

Typical roles and approximate average salary bands in procurement and purchasing

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