Traditional procurement and sourcing procurement are two approaches used in supply chain management, each with distinct focuses and processes. Here’s how they differ:
Traditional procurement, also known as purchase-based procurement, emphasizes the purchase transaction and tends to focus on:
- Transactional Nature: The focus is on buying goods and services when needed, often with short-term contracts or one-off purchases.
- Reactive Approach: It’s typically a reactive process where a company purchases materials only when they are required, sometimes in response to immediate demand.
- Price-Driven: Decisions are often based heavily on cost, with a strong focus on getting the lowest price from suppliers.
- Limited Supplier Relationships: In traditional procurement, the relationships with suppliers tend to be transactional, with limited long-term collaboration.
- Less Strategic: It is usually a tactical function, dealing with day-to-day purchasing needs rather than long-term sourcing strategies.
Sourcing procurement, also known as strategic sourcing, is more comprehensive and focuses on the entire supply chain and sourcing process:
- Strategic Approach: Instead of focusing on individual purchases, sourcing procurement focuses on developing long-term relationships with suppliers and improving overall supply chain efficiency.
- Proactive: It is proactive, involving careful planning to align procurement with the company's long-term objectives and future needs.
- Value-Focused: The emphasis is not just on price but also on the total value, including quality, delivery times, and innovation from suppliers.
- Supplier Collaboration: Companies often work closely with suppliers to co-develop products, improve processes, and optimize costs. There’s more focus on collaboration and building strategic partnerships.
- Risk Management: Strategic sourcing includes managing risks associated with supply disruptions, quality issues, and market changes.
- Continuous Improvement: It includes continuous monitoring of supplier performance, market trends, and cost-saving opportunities.
In short, while traditional procurement is more focused on purchasing at the lowest cost, sourcing procurement is about building strategic relationships and adding long-term value.
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