Strategic Sourcing Vs Purchasing – Key Differences
Material procurement for production and sales fulfilment is central to every business but the approach and implementation of the same differs across organisations. Traditional methods of buying based on cost-per-unit that generate mass discounts are competitively adverse and have not kept pace with the increasing levels of service-quality and supply chain collaboration.
Strategic Sourcing on the other hand is defined as an organised and collaborative approach to leveraging planned revenue spend across locations with selected suppliers that are best suited to create knowledge and value in the customer-supplier interaction.
A key difference between conventional purchasing and strategic sourcing is that strategic sourcing focuses on creating sustainable buyer-supplier relationships that are convergent. The objective is to leverage supplier capabilities, integrate and complement the core competencies to provide value, cost efficiency and uniqueness to the customer.
Strategic sourcing incorporates capabilities of suppliers, such as, quality management practices, process capabilities, design and development and cost reduction capabilities into the decision-making process, making it possible to garner accurate information and market results. Traditional purchasing on the other hand does not follow such practices that has led to a lack of visibility and missed opportunities for collaboration and cost synergies.
Purchasing is merely a transaction between buyers and suppliers, whereas sourcing is the combination of local and global domains and resources, whether monetary, human, material, information, etc. Most businesses normally start with the basic concept of domestic purchasing, before transitioning to progressive global sourcing.
Regional non-availability of suppliers and resources, growth, expansion of customer and supplier-base on one hand and cost cutting measures on the other are the usual reasons for the transition that helps overcome the disruptions in the supply chain.
Strategic sourcing professionals are now seen as decision-makers and have gained more prominence, especially in multinational corporations. They are seen as engaged in reducing costs and ensuring resource input availability for all departments within organisations.
Purchasing or Strategic Sourcing – which should it be?
It is important to identify which it makes sense to implement, purchasing or strategic sourcing. Broadly, strategic sourcing ensures quality products and services, which are comparatively expensive. It does not therefore, make sense to source strategically when the size and capacity of a business is small, as sourcing costs may exceed business turnover. In such cases, the traditional purchasing method of economy of scale should be preferred.
One should source strategically when an organisation has a presence in multiple locations and requires goods and materials that are not available from the nearest supplier. Therefore, simplistically, the choice between strategic sourcing and purchasing could depend on the size and geographic locations of the business.