One of the challenges for anyone in the global supply chain is understanding the differences between purchasing and strategic sourcing. The two can seem similar, but there are some differences.
Purchasing is usually focused on just the price and not all the aspects of the supply chains, as bringing in a supplier they can work with long term. In strategic sourcing, you look at value, product development, and how the supplier can become a valued partner. Strategic sourcing looks at all aspects of procurement, whereas purchasing alone is very shortsighted and looks mainly at what they can get for today.
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Purchasing Vs. Strategic Sourcing
Strategic sourcing and purchasing are related in that both are about obtaining supplies for the organization. They are different in how purchasing and strategic sourcing look at the process.
Purchasing materials for production, sales, and services is essential for any business. But different strategies must occur between purchasing products or strategically sourcing products.
Strategic sourcing involves collecting data, looking at the costs and prices, conducting market research, negotiating for the products, and then looking at and reviewing the contracts. In other words, strategic sourcing looks at all aspects of purchasing a product for organizations.
It can get confusing because many companies will have different departments set up for purchasing and payment of products. But even if one department makes the purchase order and who pays is different, strategic sourcing means that the review of that purchase has been done by looking at all aspects of an investment.
Strategic Sourcing Vs. Purchasing Roles Focus
Strategic sourcing is part of the global supply chain, and when you look at many aspects of the supply chain. In the past, many people would look at sourcing – what is the lowest cost they can get for a product and then buy it. It became a price war without much thought to other aspects such as the relationship to the supplier, service, and other things.
Strategic sourcing is a part of the procurement process that connects data collection, spending analysis, market research, negotiation, and contracting. Strategic sourcing directs the purchase of goods, yet it may not be the department or area to purchase for many organizations.
If a company has no strategic sourcing and only purchases, they are not strategically looking at what they are purchasing. They are just buying products without looking at all strategic sourcing.
Strategic Sourcing Vs. Purchasing And Costs
In purchasing, the main factor is what is the cost. Purchasing looks at the price, usually how they can get the lowest price per unit possible. Purchasing is price-driven.
Strategic sourcing is about looking at all aspects of the purchase or procurement. In other words, strategic sourcing will look to understand the market dynamics; they want to work with someone long-term and look beyond the price but will include delivery, administration inventory, and other things in their decision process.
Strategic Sourcing Vs. Purchasing And Value
Purchasing is a very shortsighted type of procurement. This is because you are only looking at the value of what you can get today, not the value for the long term.
In strategic sourcing, you are looking at the value you can get long-term from a supplier. Strategic sourcing looks at the supplier for everything the supplier has to offer.
Here are some kinds of things strategic sourcing will look at:
- Is the supplier able to help them develop new products,
- Is the supplier able to build a valuable relationship with them?
- Will the supplier help them to be able to increase their competitive value?
Strategic sourcing would look at all of these aspects for the future and not just what they can get today for a single purchase; Purchasing is about the price for a single purchase. Purchasing takes a short-term view, and Strategic Sourcing takes a long-term view.
Strategic Sourcing Vs. Purchasing Quality Vs. Quantity
Purchasing is cost-driven. It often looks at the price more than the quality. Purchasing is about high volumes for mass discounts. There are quality standards, but price and quantity are the main drivers in getting the price they need or want.
Looking at all aspects of the procurement, sourcing will not just look at the quantity but also the quality. Strategic sourcing is not focused on the lowest prices but on a supplier that can give them all aspects of what they need, such as product development for future products, quality, and everything else.
They want to find a supplier that can help them reduce their headaches now and in the future by offering consistent quality.
Strategies Sourcing Vs. Purchasing And Relationships Building
With Purchasing, as you are mainly concerned about what you are buying today and the cost, you’re not so concerned about the relationship or the future. Purchasing is very shortsighted.
When a company is only concerned about price, they also jump from supplier to supplier to get the best price. They feel that finding new suppliers is more accessible, so they can treat the supplier in any way they want.
One problem with that attitude is that eventually, they may run out of suppliers or find that suppliers refuse to produce for them as they know their reputation.
On the other hand, strategic sourcing is about building relationships with your supplier and understanding that your supplier is an essential part of the supply chain. They want to find suppliers they can work with long term as they realize there is value in a good relationship with a supplier.
Strategic Sourcing Vs. Purchasing And Growth
Purchasing is a very shortsighted supply chain focus. Purchasing is all about what you can get today and how much it will cost you, not about what the future brings or future growth.
Companies that believe that they only care about what they can get today and not about the future will spend a lot of time and effort trying to find new suppliers. They will constantly have a supplier do just one or two orders before moving on to the next supplier.
They will also be spending much useless time and effort trying to train new suppliers. They are spending their time on this and not on how they can grow together with a strategic supplier as part of their supply chain; purchasing is shortsighted for future growth.
Strategic sourcing looks at all aspects of a supply chain and looks at finding the right partner they can work with long term and grow with. They want to find a partner they know can grow their business with them.
If you are interested in seeing how Mondoro can help you with your strategic sourcing – we would love to talk to you to see how we can help you.
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Product Sourcing and Strategic Sourcing Explained
Product sourcing is when you source or look to find a supplier for a product you need. Strategic sourcing is strategically sourcing products. Strategic sourcing is not about the lowest purchase price but the lowest overall cost. Product sourcing and strategic sourcing are very similar, but strategic sourcing is sourcing with a plan in place.
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