Procurement vs Purchasing

BusinessProcurement and purchasing are both widely used terms in the business world. Generally, they are referred to in the same way. People will talk about procurement if considering a purchase, for example, and they will often generally reference one as if it were the other. However, even though purchasing and procurement overlap in some important ways, they actually refer to two different types of interactions.

Procurement involves a lot more than just trading money for an item. It is meant to describe the acquiring of goods and services for a place of work overall. Working in procurement for a company involves following several steps to obtain all the items the business needs. For example, once an organization decides it needs a specific product, they must acquire a list of places that sell said product. If the company has an approved vendor list, they will most likely choose from said list. If not, however, they turn to purchase orders or sales representatives. A lot of qualifying must go into choosing a company to provide a product.

Before signing off on a product, however, a the business must research best prices and contract terms for their desired product. How far the company is willing to go to get a product is discussed in this stage, and vendors are considered from all angles. When the ordered product arrives at its destination, the business then must inspect it. They have the option to reject it if it somehow is not in concordance with the purchase order.  Once the company finally accepts a purchase, they approve the invoice and pay the supplier. A payment must be filed away in purchase records for the company’s taxes and any future audits.

As you can see, purchasing is a subset of procurement, and the two are not mutually exclusive. Procurement is a process that touches every facet of a business, however purchasing itself just affects on department. When procuring a product, a business must make sure the company they work with supports the way they have carefully branded themselves. Businesses generally seek out other businesses that are like-minded, with the same values. Marketing is key, and every procurement is viewed as a step toward the company’s overall goals.

All in all, I would like to stress that procurement and purchasing should not be used interchangeably. The procurement process is a lot more in depth and should be handled as having an effect on the entire business.

Oil Prices on the Rise?

Economy

The oil industry has not been doing so well in the past few years. It has had to deal with a dramatic decrease in price, as supply has increased and demand has decreased. More specifically, the price of oil has dropped 70% in the past two years, worrying oil barons and economists alike. This is, in part, due to fracking in the United States. This country has been using this technique of hydraulic drilling to increase accumulation of oil on their own soil. They were not aware that such a tactic would so detrimentally affect their economy. Additionally, large oil production companies have been wary to cut down production in fear of the competition being favored. Such conditions have sent oil prices plummeting all over the world. However, there is speculation that the oil price plunge has hit bottom, and it will now begin to rise again.

This hopeful projection stems from the fact that oil prices have gone up since the start of the new year. Prices per barrel are up almost 2% since January. This is in part due to production outages in countries on which the world relies for their oil, such as Nigeria and Iraq. Such an increase in the past few months bodes well for the future of oil, which could also give the global economy a much-needed boost.

Other factors that have added to the rise of oil prices per barrel include a sharp decrease in investment. When oil is doing well in the markets, investors make ‘exploration investments’ that help fund exploration to find new sources of oil. However, when prices began to drop, investors put all oil exploration efforts on hold. Also, there is simply not as much demand for fuel as their once was in the world. As society is becoming more environmentally conscious, there is a growing demand for energy efficiency. One part of efficient energy is finding sources other than oil from which to draw power. Fuel efficient cars, for example, make the demand for oil much lower than they have been in the past.

The International Energy Agency (IEA) has taken into account all the available information, and is not convinced the prices of oil will continue to rise. The demand for oil reached its highest point in the middle of the year 2015, but has slowed down, leading the IEA to believe that the demand for oil will remain flat this year.

It will be interesting to watch how increased oil prices affect demand, and if these prices will continue to increase in the next few years.