Purchasing is not the same as procurement. Treating the strategy around these two distinct concepts as similar is the difference between saving a few dollars this quarter and building a resilient business that will stand the tests of time.
A purchasing strategy can be appropriate in some situations, like shoring up cash leaks. While a procurement strategy takes a more holistic approach to the essentially process of getting the supplies to run your business. This is where SBS Supply Chain Solutions comes in.
Harvard Business Review positions procurement strategies as, “uniquely positioned to orchestrate long-term value-creating systems that can accommodate incompatible value holders, withstand exogenous shocks, share loads, and grow dynamically.”
Supply Chain Strategy is a competitive advantage in the marketplace, where purchasing is transactional. Utilizing a procurement strategy leads to long-term, relationship-based thinking. This way of thinking builds the type of resilience that leads to growth even in the face of market disruption, but why?
Purchasing is the act of buying components for your business, focusing on the point of transaction. The act of purchasing is to essentially answer the questions of “What am I buying and for how much?” Strategic purchasing only accounts for selecting a product, its pricing, and the exchange of money, not the entire process of procuring something for your business.
Procurement is, according to Thomasnet.com, an “all-encompassing strategic array of processes that includes both purchasing and sourcing.” Sourcing is the process of selecting a vendor, which includes optimization of supplier relationships, risk management, supply chain management, market analysis, contract negotiation, and more.
A Supply Chain procurement strategy considers “Who am I buying it from, why them, and how does that relate to the current market?”
An Effective Strategy Can Save Your Business Time & Money
How your company buys things can include budgets by department, purchase approval methodology, and more. By implementing requirements and processes around purchases, you may lower costs and avoid most common immediate money leaks.
However, maverick spends, impulse driven purchasing decisions often made outside of a preferred supplier list, can be a huge issue for companies of all sizes. Maverick spends can make up 80% of a company’s total spend.
A purchasing strategy can formalize the process of buying quality goods, giving the finance or purchasing department recourse for pursuing total cost reduction and resolving maverick spend type issues. This attitude is relatively short-term, looking to regulate moments where an employee “just needs to make this one quick purchase.” Because a purchasing strategy fails to take sourcing strategy into account, it can struggle with long-term issues like administrative and labor costs.
Procurement Strategy Can Make Your Business More Resilient
A procurement strategy defines not only how your company buys things, but also which vendors you buy those things from, why those vendors are preferred, and how those vendor relationships are managed. This additional context forces your business to think in more long-term ways and to consider itself as a part of a larger supply-chain network.
Strategic procurement includes contract negotiation processes, the management of interpersonal relationships, and more. A broader perspective on the entire procurement process can build up your company’s resilience in the face of uncertainty and become a competitive advantage.
Using a procurement strategy, a finance or procurement team can analyze the spend in the context of sourcing and vendor development. They can ask and start to answer questions like, “Is the spend partially a result of a preferred vendor not fulfilling our employees’ needs?” They can then identify if they need a new vendor, if they need to adjust a contract with an existing vendor, or if they need to improve internal processes.
SBS Supply Chain procurement strategy wants to partner with clients facing significant disruption and need to not only shore up short-term money leaks, but also build competitive vendor relationships. Our focus will broaden to consider internal processes and recognize the role your business plays in a larger supply chain network.
This “network” perspective has gained importance as expectations placed on businesses have shifted:
- Concepts like sustainable procurement practices are becoming more and more important to consumers.
- Supplier relationship management has been shaken up by concepts like the purchase-to-pay decision matrix, outsourcing, and disruptions in global supply.
- Internal processes are dominated by concepts like total quality management (TQM), where customer satisfaction is put at the center of the supply chain.
SBS supports a “network” perspective, saying that if businesses build a system that creates value by improving relations among all stakeholders, everybody wins. Thinking strategically about procurement makes that possible.