The key difference between proactive and reactive purchasing is that proactive purchasing is a planned activity that considers buying a product or service before a customer places purchase orders whereas reactive purchasing is not a pre-planned activity as it considers buying after a spontaneous need.
In today’s highly competitive global market place, both proactive and reactive purchasing concepts are important in procurement activities. Purchasing method will vary with the business situation.
CONTENTS
1. Overview and Key Difference
2. What is Proactive Purchasing
3. What is Reactive Purchasing
4. Relationship Between Proactive and Reactive Purchasing
5. Side by Side Comparison – Proactive vs Reactive Purchasing in Tabular Form
6. Summary
What is Proactive Purchasing?
Proactive purchase refers to buying a product or service as a planned event before customers place purchase orders. Proactive purchases do not occur immediately. Normally, it depends on the production forecast or strategic business plan in a business organization.
Proactive purchases will bring both advantages and disadvantages to a business. In a manufacturing company, materials are purchased prior as per the order forecast. Therefore, bulk quantities can be purchased, and this is cost-effective. On the other hand, this may bring negative consequences too. If the forecast does not meet the expected result or the customer cancels the order, the purchased goods will be an additional expenditure. Moreover, it will require more storage space in the warehouse.
Another example of proactive purchasing is recruitment. If the company targets to achieve higher profits after a certain period, the company needs to allocate the required staff for the operation. Therefore, the company will hire and train appropriate staff prior.
In the current business context, proactive purchasing is the latest and best procurement practice to help the business entity maximize the effectiveness and efficiency of its supply chain. It will help to reduce cost and improve quality.
When discussing proactive purchasing, the following topics are important concepts.
- Production inventory control
- Cost-benefit analysis
- Risk management
- Sourcing
- Green purchase/Green channel suppliers
- Business ethics
What is Reactive Purchasing?
Reactive purchase refers to buying a product or service after a spontaneous need. Reactive purchases are normally sudden business decisions; the annual budget or capital expenditure in a business organization may not include these.
Furthermore, reactive purchases may sometimes incur a higher cost for manufacturers. For instance, if the material requirement plan fails to cater to all material required for scheduled orders, the shortage should be immediately purchased. As a result, the manufacturer has to sometimes pay additionally for the supplier depending on the material quantity or the urgency. In certain industries, local purchases are categorised as reactive purchases as the company buys the required resource or service once the requirement arises. For example, soon after the customer confirms the order, procurement team purchases required material from local suppliers as the lead time is smaller. Thus, it will save storage space, avoiding unnecessary material stocks in factory facility. Another example of reactive purchasing is immediate recruitments.
What is the Relationship between Proactive and Reactive Purchasing?
Purchasing methods can vary depending on the business situation. A sustainable business mostly uses proactive purchasing methods. However, in an emergency situation like a material shortage, reactive purchase methods are inevitable.
What is the Difference Between Proactive and Reactive Purchasing?
The key difference between proactive and reactive purchasing is that proactive purchasing is a planned activity, whereas reactive purchasing is caused by an unplanned activity.
Moreover, a significant difference between proactive and reactive purchasing is that in proactive purchasing, materials required for production are ordered before receiving purchase orders from customers. However, in reactive purchasing, materials required for production are ordered after receiving purchase orders from customers. Generally, proactive purchases are cost-effective, whereas reactive purchases are expensive. Furthermore, proactive purchasing includes performing a cost-benefit analysis, whereas price is not an important factor for reactive purchasing. Normally, proactive purchasing occurs with bulk quantities in manufacturing facilities. In contrast, reactive purchasing occur with small quantities. So, this is another important difference between proactive and reactive purchasing.
Besides, sometimes, reactive purchasing occur through an intermediary for seeking a potential buyer for acquisition. On the contrary, proactive purchasing occur directly for acquisition. Moreover, proactive purchasing occur through strategic plan while reactive purchasing does not involve with the strategic plan.
Summary – Proactive vs Reactive Purchasing
In summary, the key difference between proactive and reactive purchasing is that proactive purchasing is a planned activity that considers buying a product or service before the customer places purchase orders whereas reactive purchasing is not a pre-planned activity as it considers buying after a spontaneous need.
Reference:
1. Hong, Zhen, et al. “Proactive and Reactive Purchasing Planning under Dependent Demand, Price, and Yield Risks.” SpringerLink, Springer Berlin Heidelberg, 29 Aug. 2013, Available here.
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1. “1452877” (CC0) via Pxhere