Purchasing Vs. Procurement
Knowing the difference can save money on supplies
By Michael Wilson
Photos: Nic Lehoux Photography
Recreation administrators typically try to purchase all supplies ahead of the busy summer season to make sure they have enough goods and supplies when the crowds arrive. However, should administrators be “purchasing” these items?
Photo: © Can Stock Photo / dizanna
Possibly we should explain.
Purchasing and procurement are not the same. Most people do confuse these terms, but understanding the difference can prove to be a significant cost-savings for park administrators. So, what is the difference? We can start with how these terms are defined in the supply-chain management industry:
Purchasing: Purchasing is the act of selecting a product, paying for it, and then taking it from a retail store or having it delivered to a location. We've all done this, and we do this for most of our own personal buying. Typically, we purchase something from a supplier, and once the order is placed, it is delivered to a park or recreation facility. An invoice is left with the delivery or emailed afterword. Once paid, that is the end of the purchasing process.
Procurement. Procurement is a strategy. Yes, it does involve purchasing goods and services. However, the entire process is much broader; it involves costs, delivery and logistic options, a Plan B should a product not be available when needed, and a format for issues to be addressed, and it even addresses green and sustainability concerns.
The following steps in the procurement process should be a further clarification:
Procurement Strategy At Work
Before beginning the procurement process, administrators need to know what products they will need, and whether these are for just the summer months or year-round. Note: this does not refer to the brand. One may realize, for instance, that he or she needs to select paper towels. The manufacturer of the paper towels is not the issue at this point. Knowing that these supplies are needed, based on past experiences and the necessary quantity, is the issue at hand.
With this completed, here are the next steps:
Identifying suppliers. Many administrators send out requests for proposals (RFPs) for services, such as landscaping, but often don’t do so for suppliers. With a list of products, contact local distributors or nationwide suppliers and ask them to respond to your RFP. They will certainly welcome the opportunity and appreciate that a potential customer has a good idea of exactly what products are needed.
Evaluating RFPs. The evaluation process includes many steps. The first is to always provide a date when the RFP is needed. Suppliers that deliver the RFP beyond that date should probably not be considered. If they are late with the RFP, will they also be late with product deliveries?
Next, in reviewing the RFPs, look for how many years the suppliers have been in business and if they are connected to a nationwide network. This is important. A local supplier may be out of a product, but if the supplier is part of a network, another supplier in the network will likely have the product and handle the delivery. Also, some suppliers have access to online dashboards that provide more product options regarding performance and price. If a distributor has one of these dashboards in a supply arsenal, that should be considered a “feather in the cap” because it eliminates trial-and-error purchasing.
The next step is to ask those suppliers you are most interested in to give a presentation. Limit presentations to no more than five suppliers, if possible.
Now it is time to evaluate pricing … somewhat. Some suppliers may recommend going with “good” products that should meet most facility demands. Another supplier may suggest higher-end products, and still another may offer the least-expensive, which often translates into poorer quality. What might be a surprise for many administrators is that price should not be a concern at this point. Instead, the focus should be the supplier-customer relationship, the technology and resources to help in the product-selection process, and the ability to address the facility's needs most effectively.
Photo: © Can Stock Photo / carmenbobo
Determining Specific Products
Hopefully, by now, a supplier has been selected, but sometimes a second round of presentations is required, or further meetings among a select number of suppliers with key stakeholders is to be held before a decision is made. Take your time. This is a critical decision.
This brings us to product selection. If a decision has been made to select “good” products—not too expensive or not too inexpensive—the supplier should be able to present most of the supplies available within these price parameters. If they have access to online technologies, they can also provide product comparisons:
Features and benefits of various products
Green and sustainability factors
Payment options
Availability of product discounts or rebates
Delivery options, logistics, and other factors.
If the selected distributor does not have access to dashboards or newer technologies, this can still be accomplished. However, it will involve more traditional methods, such as working with different product catalogs, which tends to be slower.
Including Conflict-Resolution Measures
In purchasing, there is typically no set procedure to resolve issues should they occur. If the product has not been opened, it can be returned, in most cases. However, what if a product—such as a machine—has been purchased, is being used, and is found to be faulty or not the right system for a facility?
In such cases, if the product has been purchased, there is usually no recourse. If the product was selected through the recruitment process, then ways to resolve the problem will likely be included.
Cost Reduction
Purchasing and procurement can differ in several ways, but let’s focus on one that many park and recreation administrators will have an interest in—cost reduction.
In most procurement programs, administrators can take advantage of bulk-ordering. The distributor knows how many products are needed and can plan accordingly. Doing so gives the supplier the ability to pass on rebates and bulk-ordering discounts to the customer, which can prove very significant.
But let’s also look at why purchasing may actually cost us money. Prices can fluctuate. Administrators order products when needed, not based on the current price. If the price increases, but they need the item now, they pay more.
Further, what if the product needed is no longer available? In such cases, administrators must start looking for alternatives. Now the product is a necessity. If no Plan B has been created, this invariably ends up costing more money—something every administrator tries to avoid.
Michael Wilson is a Leadership in Energy and Environmental Design Accredited Professional, a frequent author, presenter, and recognized expert on supply-chain management. Reach him at wmwilson@afflink.com.