Basic Difference: Company Monsters And Monsters want to buy Peanut Butter for their button-shaped candies. They can buy it either from an external vendor Charlie And Peanut Factory (CPF) or their own subsidiary PBS. When the procurement is done by dealing with CPF, it is treated as External Procurement. When PBS provides the goods, it is considered Internal Procurement.
Impact: The significant difference is in the accounting aspect of the transaction. Any business with CPF is an expense. However, with PBS, while it is an expense, it is also an income and is accounted in a different account. The sales aspect can be considered as the intercompany process. This peculiar situation is handled by using different valuation types for internal and external procurement.