Purchasing & Procurement

What is This?

Purchasing and procurement are often used interchangeably, but they have different meanings. Purchasing is a subset of procurement.  The expression “procurement” involves the strategic management of the supply chain and the entire process of acquiring goods and services.

 

Purchasing is acquiring goods or services, usually through a transaction or agreement. For example:

  • Buying things or services with a credit card or check
  • Making discretionary purchases under a pre-approved amount
  • Purchasing commonly used commodities

Conversely, procurement encompasses a broader set of activities, including identifying needs, sourcing, negotiation, and contract management.

  • Contracting with a company for a major project
  • Contracting with a service firm over a long period
  • Buying products with costs exceeding a pre-approved amount

Relevant Sallisaw Code: Division 2. – Procurement

State Law reference— Municipal purchases generally, 11 O.S. §§ 17-102, 17-114; purchases from certain municipal employees prohibited, 11 O.S. § 8-113; purchases from members of governing body prohibited, 21 O.S. § 355 et seq.; municipal purchasing procedures, 62 O.S. § 310.1 et seq.; the Oklahoma Central Purchasing Act, 74 O.S. § 85.1 et seq.; Public Competitive Bidding Act of 1974, 61 O.S. § 101 et seq.

Notable points include that purchase amounts above certain thresholds constitute “Procurement.” These must follow statute rules such as ways to announce (notify) the public and contractors regarding an upcoming bid request. Our local codes for procurement refer to Oklahoma statutes.

Something that may seem unclear to some is the use of the symbol §. This symbol means “section.” The statute’s full name (common name) is “Public Buildings and Public Works. But instead of the common name, these have a number–in this case, the number is called “Title 61.” Then, the § mark preceding “61” means that the “104” is a section inside the full version of Title 61. 

Procurement Strategy

A broad definition of “strategy” is a plan of action or policy designed to achieve a major or overall aim.

Drawing from the broad definition of “strategy,” a procurement strategy is the process and policy to minimize costs while maximizing quality and speed.

Document and enforce procurement policy (examples)
  • Define authority levels and spending limits approval
  • Reduce ongoing costs for transactional items
  • Use local sources when appropriate
  • Consolidate supplier list for better terms
  • Use risk management processes
  • Implement quality management and operational audits,
  • Manage supplier relationship
  • Achieve volume discounting when available
  • Compare similar products through benchmarking
  • Leveraging technology when advantageous to do so
  • Maintain equipment maintenance for product warranties
  • Use energy-efficient technology for cost savings
  • Enlist legal review of requests for information (RFI)
  • Enlist legal review of requests for proposal (RFP)
  • Use boiler-plate disclaimers and descriptions
  • Periodically refresh vendor lists
Standardize processes
  • Standardize purchasing processes (frequent, low-cost items)
  • Standardize procurement processes (infrequent, high-cost items)

Establishing and Enforcing Policy

Ideally, one or more employees become an expert advisory resource for interpreting and improving procurement policy. Experts typically have a well-recognized certification such as Project Management Professional (PMP), Certified Business Analysis Professional (CBAP), Certified in Planning and Inventory Management (CPIM brochure);

See the APICS table of contents for procurement to scan through important competencies for professional procurement personnel.

Summary

Procurement and purchasing are related but have different meanings. Purchasing involves acquiring goods or services through transactions or agreements, while procurement includes activities like identifying needs, negotiation, and contract management. A procurement strategy aims to minimize costs while maximizing quality and speed by enforcing policies, reducing ongoing costs, and using risk management and technology. Standardizing processes and establishing policy are important for effective procurement. Experts with certifications like PMP or CPIM can help interpret and improve procurement policy.