Procurement vs. Acquisition = Commerical vs. Goverment?
One of my staffers in the Vendor Management Office, Donna Jackson, Esq., CTPE, wrote the following article after a chance dinner encounter. Yes, this really is what us procurement-obsessed folks talk and think about...
Procurement vs. Acquisition: Interchangeable Terms or Distinct Terms of Art?
For a
long time I have always thought of acquisitions and procurements as being one and
the same process; the process leading up to the purchase of a product or service
to be used internally by companies large or small.
I was recently
out to dinner with friends and met one of their colleagues who is a Lieutenant
Colonel in the U.S. Air Force. After he was describing an upcoming series of
trips he would be required to take for work, I asked what his career field is.
He responded that he is “in acquisitions.” As a procurement professional, I
immediately thought we had taken a common career path. I told him that I was in
“procurement” as well. He then corrected me and told me that they were not one and
the same in that procurement is a sub-process of the greater acquisitioning
process. Instead of challenging him, I
politely nodded in agreement.
This
sparked my interest so I decided to research it a bit for further edification.
Wikipedia, often a trusted Internet resource, defines
Procurement
as “the acquisition of goods and/or
services at the best possible total cost of ownership,
in the right quality and quantity, at the right time, in the right place and
from the right source for the direct benefit or use of corporations,
individuals, or even governments, generally via a contract, or it can be the
same way selection for human resources. Simple procurement may involve nothing
more than repeat purchasing. Complex procurement could involve finding long
term partners – or even 'co-destiny' suppliers that might fundamentally commit
one organization to another.”
Like Wikipedia, I have always
included in my definition of procurement, the word “acquisition” as I have long
believed the two words to be interchangeable.
Was it that the government knew something that we in the commercial sector didn’t know? Was the military piece the distinction that made the difference? After all, I have worked in procurement for many years doing both government and commercial contracting and purchasing and even the government procurement and contracting officers used both terms synonymously.
The
Procurement Process
I
have seen and instructed on various comprehensive procurement life cycles—one Internet
site outlines seven steps to completion as follows:
- Information
gathering: Must occur when customer does
not have an established relationship with suppliers of needed products and
services.
- Supplier
contact:
When one or more suitable suppliers have been identified, the RFx process
begins: requests for quotation
(RFQ), requests for proposals
(RFP), or requests for information
(RFI) are sent to suppliers as needed.
- Background
review:
References are checked out of those supplier’s current and past customers
similarly situated to your company needs.
- Negotiation:
Negotiations
are undertaken, and price, availability, and customization possibilities
are established. Delivery schedules are negotiated, and a contract to
acquire the product/service is completed.
- Fulfillment:
Supplier preparation, delivery, and payment for the product/service are
completed, based on contract terms.
- Consumption,
maintenance, and disposal: During this phase, the company
evaluates the performance of the product/service and any accompanying
service support, as they are consumed.
- Renewal:
When the product/service has been consumed and/or disposed of, the
contract expires, or the product or service is to be re-ordered, company
experience with the product/service is reviewed. If the product/service is
to be re-ordered, the company determines whether to consider other
suppliers or to continue with the same supplier.
There are many additional aspects
to the procurement process but for limited illustrative purposes here the above
suffices. Depending on the industry, type of company, scope of the purchase
(global vs. regional vs. national) the number of steps in the process and
accompanying terminology may differ.
Depending on how evolved the
procurement organization is, some procurement processes are centralized and
incorporate economies of scale while others are separate and distinct even
within the same company or government agency.
The Acquisition Process
As
I began researching this topic, one major differentiator was that my U.S. Air
Force acquaintance, although working for the Air Force, makes acquisitions for
the Department of Defense (DoD). In this capacity his role focuses on the front
end or pre-award phases of the acquisition process.
As
the largest purchasing organization in the world, Department of Defense (DoD)
senior leadership has determined the acquisition function to be strategic in
nature and vital to the success of the Department's efforts to provide
reliable, responsive and cost-effective support to our military service members
worldwide.
The acquisition process is much more than simply
buying something. It includes all activities from planning, preparation and
processing of a requisition, solicitation, evaluation, award and contract
formation, to receipt and acceptance of delivery, payment, inventory management,
and property sustainment and disposition.
As illustrated in the below continuum:
Procurement is a subset of acquisition. Procurement which may or may not be
complex is the actual purchasing of goods and services by contract, purchase
card, grant, intra-governmental transaction, or other means.
Acquisition
/___________________________________________________________________________/
|___________Pre-Award______________|
Concept/Design
Planning
Preparation
Development
|__________Award_____________|
Procurement
|________Post-Award________|
Contract
Management
The acquisition process can be very short, 2 to 3 years or very long, taking decades to complete. On the other hand a very long procurement might last 18 months to 2 years. Depending on your audience, feel free to use these terms interchangeably, but understand whether they know it or not, procurement professionals are all part of the greater acquisitioning process.
Who knew?
Hi Donna! Excellent article. I think your LTC acquaintance was being a bit petty and perhaps puffing a bit. While I believe that you're research is also accurate that acquisitions=SCM, I personally believe that procurement folks are ALL engaged in SCM - only some employers don't get it and don't let us do the complete cycle, choosing poorly instead and only engaging us to "buy stuff". The advantage that the govt/military has is that somewhere along the line, the realized the value we bring to the entire process and let us do our jobs completely rather than hamstringing us. But that doesn't change what "we" do as a career, only what we're allowed to do by some third parties. :)
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This is great information, especially since I've been trying to determine shared and differing traits of Procurement v. Contracts v. Acquisition.
Can anyone provide additional insights into differences and similarities?
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