Procuring materials for the intention of production, sales and service fulfilment is indispensable for every single business. However, the approaches, strategies and implementations differ immensely. We use lot of terms like strategic sourcing, procurement and/or purchasing. In this blog we tried to explain the difference between Strategic Sourcing vs. Purchasing.
Strategic Sourcing refers to making Supply Chain Management decisions with the intent to create distinctive value and to achieve a competitive advantage. Sollish & Semanik, (2011) claim that it is an old function and has had its roots from the commencement of purchasing philosophy, whereby traditional buying dealt with locating and hiring suppliers, instead of identifying the best value-creating party to the SC. Generally, the organizations mainly focused on cost-per-unit, resulting from the decisive determinant of voluminous amounts that generated mass-discount. This method, however, evoked competitive adversarial failure for many firms as the scale of service-quality and supply chain collaboration elevated (Beaty, 2013).
Strategic Sourcing vs. Purchasing
One of the key difference of Strategic Sourcing in contrast to conventional purchasing is that it extends beyond purchasing and focuses on converging and sustaining the buyer-supplier-relationships (Skjøtt-Larsen & Schary, 2001). The objective is to leverage them, exploit their capabilities, integrate and complement the core competencies of the various partners in the supply chain (interdependence) in order to provide value and cost efficiencies and uniqueness for the customer.
As Strategic Sourcing incorporate strategic dimensions and capabilities of suppliers such as emphasis on quality management practices, process capabilities, design and development, and cost reduction capabilities into the decision-making process it is possible for firms to achieve accurate information and best-in class market results (Beaty, 2013). In contrast to traditional purchasing, such practices were not followed which consequently led to a lack of visibility, opportunities for collaboration and cost synergies were misled.
Tanskanen & Aminoff, (2015) suggests a general difference between strategic sourcing vs. purchasing, by pointing out that purchasing is merely the transaction between buyers and suppliers, whereas sourcing is the integration and coordination of all local and global domains and resources, being monetary, human, material, informational, etc. Nonetheless, they affirm that the businesses normally initiate with the basic concept of domestic purchasing, before proceeding to internationalization and merge to progressive global sourcing.
The reasons for these progressions are, on the one hand, regionally non-existing suppliers and resources, cooperate-growth, customer and supplier-base expansion, and on the other hand, the attempt to cut costs and, if applicable, overcome domestic SC disruptions or statutory restrictions.
In the past, the Management did not believe that strategic sourcing is a value generating activity at all, and therefore, this area was entirely underinvested, omitted and not in the sphere of interests in some companies. Presently, strategic sourcing functionaries are seen as decision-makers and gained recently more and more on prominence specially in multinational corporation. Since they reduce costs and ensure resource input availability for all departments within the companies (Ketchen Jr., et al., 2014).
7 Key Difference – Strategic Sourcing vs. Purchasing
Conculsion – Modern or traditional sourcing approach
Having pointed out the key differences and methods of Strategic Sourcing and traditional purchasing, it is pivotal to identify when does it make sense to implement them for who. Thus, it can be stated that the decision depends on several factors, even if customer demand is the decisive determinant in both cases. Furthermore, the goods and materials, as well as product segment that can be obtained locally, should be preferred thus logistical costs can be saved.
Strategic Sourcing entails high qualitative products and services, which is comparatively expensive. Therefore, when the size and capacity of a business is small, it does not make sense to source strategically, since the costs will exceed the turnover. In such a case, depending on the products, the traditional purchasing method of economy of scale should be preferred.
On the other hand, it is reasonable to source strategically, when the organisation is placed in multiple locations and requires goods and materials that are not available from the nearest supplier. Therefore, the choice between Strategic Sourcing vs. Purchasing depends a lot on size and geographic locations of your business.
About Author: Sinbl Hawro Yakoob
Sinbl graduated in Int. Business Studies, specializing in Supply Chain Management (SCM), from the Zuyd University of Applied Sciences in Maastricht, NL. Only recently, Sinble has finalized Master’s in Int. SCM and Logistics at the Plymouth University, GB. Hence, she endeavoured an academic career within multiple countries, in order to learn different facets of Logistics and SCM. While studying International Business, the subjects of Logistics and SCM have enhanced her interests considerably, and therefore she has decided to pursue masters in that field. Having a profound insight in this realm is significantly contributing and instilling to her knowledge, which is certainly pivotal for being able to write articles and transfer this know-how for the interested readers. Thus, combined with Sinbl’s interest in international development, she is positive that she have much to add to this blog and for its followers. Currently, Sinbl is am working at Mercedes Benz Customer Assistant Center Maastricht, NL in the Critical Parts Management Department, in which I am responsible for handling the bottleneck products.
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List of references
Beaty, T., 2013. Strategic Sourcing versus Traditional Purchasing: And the Impact on your Bottom Line. Insight Sourcing Group.
Boyde, J., 2014. A Down-To-Earth Guide To SDLC Project Management: Getting your system / software development life cycle project successfully across the line using PMBOK adaptively.. 2 Hrsg. s.l.:Joshua Boyde.
Eltantawy, R., Giunipero, L. & Handfield, R., 2014. Strategic sourcing management’s mindset: strategic sourcing orientation and its implications. International Journal of Physical Distribution & Logistics Management, 03 05, pp. 768 – 795.
Ketchen Jr., D. J., Crook, T. R. & Craighead, C. W., 2014. From Supply Chains to Supply Ecosystems: Implications for Strategic Sourcing Research and Practice. Journal of Business Logistics , 01 08, p. 165–171.
Mangan, J., Lalwani, C., Butcher, T. & Javadpour, R., 2011. Global Logistics and Supply Chain Management. 2 Hrsg. s.l.:John Wiley & Sons, Inc..
Skjøtt-Larsen, T. & Schary, P. B., 2001. Managing the Global Supply Chain. Second ed. Copenhagen: Copenhagen Business School Press.
Sollish, F. & Semanik, J., 2011. Strategic Global Sourcing Best Practices. Canada: John Wiley & Sons.
Talluri, S. & Narasimhan, R., 2002. A Methodology for Strategic Sourcing. European Journal of Operational Research, 29 07, Band 154, pp. 236-250.
Tanskanen, K. & Aminoff, A., 2015. Buyer and supplier attractiveness in a strategic relationship — A dyadic multiple-case study. Industrial Marketing Management, 11 04, p. 128–141.
Welch, J. A., Little, A. D. & Nayak, P. R., 1992. Strategic sourcing: a progressive approach to the make-or-buy decision. Academy of Management Executive .
About the Author- Dr Muddassir Ahmed
Dr MuddassirAhmed is the Founder & CEO of SCMDOJO. He is a global speaker, vlogger and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and South East Asia in various Supply Chain leadership roles. Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools and access to experts.