If you’re new to the supply chain arena, there’s no shame in admitting you have no clue about the differences between procurement, purchasing and strategic sourcing. You are one of many professionals sharing the same sense of confusion. In fact, even among procurement professionals, you can expect to hear multiple opinions and definitions about what constitutes each of the three areas.
The Differences Between Procurement, Purchasing and Strategic Sourcing
In this post, I’ll try to unravel some of the mystery and provide as clear a distinction as I can between procurement, purchasing and strategic sourcing. My definitions are probably no more correct than those of anyone else, but are the product of involvement with many supply chain organizations and their internal projects.
Having witnessed how these companies differentiate between procurement, purchasing and strategic sourcing, I can say with confidence that the following points reflect a common corporate understanding of the terms.
As compared with procurement and strategic sourcing, purchasing has the narrowest scope in terms of activities and processes. Purchasing is really the activity involved in physically buying products and materials on behalf of a company. These might be raw materials or components used to manufacture a product, finished goods purchased to be sold on (in the case of a wholesaler), or the assets, consumables, or services necessary to operate the business.
Purchasing can be said to be the transactional element of procurement. On the whole, a purchasing team will not be held responsible for identifying suppliers, but will place (and pay for) orders for products and services from suppliers identified as part of the procurement and sourcing processes.
If you place purchasing into the context of your own personal life, for example, you can say it’s the act of physically going to a store and doing your shopping (or sitting at your computer and placing an order from an ecommerce retailer}.
If purchasing is akin to shopping, procurement is the broader set of processes which include the shopping, but also all the other activities associated with obtaining products, materials and services. These activities include:
- Identifying what your organisation requires in order to operate
- Searching for the right suppliers, products, materials and services
- Selecting suppliers
- Establishing contractual agreements with suppliers
- Managing relationships with suppliers
- Developing and managing purchasing policies and processes
It should be noted that in some organisations, purchasing teams may be accountable for supplier management or other elements of procurement, in addition to their role as purchasers.
An important difference between procurement and purchasing, is the fact that purchasing processes tend to follow standard sequences, regardless of the size or nature of a company. On the other hand, wider procurement processes are typically structured uniquely to fit the needs of an organization.
Again, using the personal buying analogy, shopping is shopping. We all make our purchases according to a common set of steps based on how we decide to shop. However, the way in which we choose where to shop, form opinions about our suppliers, and decide when to switch from one store to another, depends upon our personal motivations, perspectives, and preferences.
Strategic sourcing is an even broader way of looking at procurement and purchasing. As its name implies, strategic sourcing is a matter of aligning procurement decisions with overall business strategy, ensuring that all purchasing decisions offer the maximum contribution to an organisation’s commercial goals.
Because it’s a concept that is still in a process of maturation, companies apply strategic sourcing in many different ways. However it’s often limited to specific areas of procurement, particularly core purchases of high-value materials, products and services.
The most important strategic sourcing decisions are often taken at the highest level in an organization, although procurement departments are typically responsible for putting strategies into action and managing them.
Still Confused About Procurement, Purchasing and Strategic Sourcing?
Hopefully this explanation has helped to reduce your confusion about these three areas of corporate sourcing and purchasing. None of the definitions are set in stone though and your own company will have its own way of doing things. Still, perhaps you now have a slightly clearer idea about the connections and differences between procurement, purchasing and strategic sourcing.
Of course, to understand all the concepts properly requires more in-depth study. That’s where the Supply Chain Leaders Academy can help. Our e-class numbers 5, 12, 13, 54, 75, and 76 cover procurement and purchasing topics in some detail. If you’re an academy member, be sure to take a look at them to learn more.
If you haven’t yet joined the Supply Chain Leaders Academy, you can find plenty of details about what we do on our home page, along with an enquiry form if you’d like to ask any specific questions or get membership details. We look forward to hearing from you.