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Every industry has its own lingo. Referring to intricate stuff that no one outside of that specific line of work would understand. The same is true for freight procurement. Bunker adjustments, break point analysis, LTL, TEU, ADR, etc. etc. But still, what often causes the most confusion is the simple nomenclature used to describe what we do! Is it freight purchasing? Freight procurement? Transport sourcing? Transport tendering? Really, what’s the difference, and why can’t everybody just agree to call it one thing?
Well, there is a very real difference between the terms, although it may not always be entirely obvious. Not to mention that tendering can mean one thing in Europe and a completely different thing in America. To help you navigate the jungle, we put together some definitions for each term, because – like the 90’s rock band The Offspring once sang – you’ve got to keep them separated!
An easy way to put it is to say that procurement is the acquisition of products and services, specifically for a business purpose. It covers the entire process, from identifying the need of goods and services allocation of suppliers. These activities can involve the process of setting up a process, collecting bids, selecting vendors, negotiating contracts etc.
As can be inferred from the name, sourcing implies the strategic search for suitable suppliers to satisfy your need. This is obviously foundational for the entire procurement process to function.
Whereas procurement involves the entire process from need identification to invoice payment, tendering itself is limited to the process of going to the external market with your need specification with the intent to collect, analyze and nominate bids.
Purchasing is a subset of Procurement. Although the terms are sometimes used interchangeably they have different definitions. Purchasing simply involves buying and selling of the goods and services. As such, it belongs in a tier below procurement in the hierarchy. Purchasing can be described as the transaction-oriented function of Procurement.
There you go – pretty simple, huh? So the next time you meet a transport procurement manager, or a freight sourcing manager, you can ask them if their work actually matches their title!
Hopefully these few definitions will help you avoid misunderstandings during your next freight procurement process!
CEO Johan Vagerstam