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What Is The Difference Between Procurement, Purchasing And Sourcing?
Regardless of where you are on your sales journey, understanding how “purchasing” works is always an important foundation skill. There’s nothing worse than winning a deal with a client, only to find out that they say “you’ll just need to talk to procurement and you’re all set”.
So, in this article, we’ll set out to explain:
- The differences between these similar named terms
- Why they’re important functions
- What it means for you as a sales person
How do these terms inter-relate?
The best way to describe it is with a diagram:
At a high level:
- Strategic Sourcing defines needs and identifies the right kinds of suppliers
- Procurement runs a process to secure the right supplier for a particular need and negotiates terms/contracts
- Purchasing is the transactional part of the process and includes raising purchase orders, checking contracts are in place and loading details onto systems
Note: depending on the size of the organisation, all three roles may be performed by the same person, or they may be entirely separate.
What Is Strategic Sourcing?
Strategic Sourcing (or simply Sourcing) is the term used to refer to people concerned with sourcing where materials and products may come from.
This role is more aligned with trying to find the “where” and “who” rather than the “what” or “how”. For example, sourcing is finding a supplier who manufactures a certain product for your business.
Key roles within the Sourcing department include:
- Building a Category Strategy
- Working with internal stakeholders to define aggregate, current and future needs
- Evaluating suppliers within a category to assess value and performance
- Seeking out and evaluating potential vendor information
- Carrying out a supplier risk analysis before negotiating contracts
What Is Procurement?
With so many slightly different descriptions being used to describe this job role, you may find yourself unable to explain “what exactly is procurement?”.
As sales people, these are the people you’ll meet (mainly) when negotiating a contract.
Responsibilities include typically:
- Defining a specific need with internal stakeholders and writing the tender/RFP documents
- Create supplier short-lists (working with Strategic Sourcing)
- Evaluate supplier quotes
- Build and manage supplier relationships
- Analyse performance against SLAs/KPIs/objectives
- Negotiate supplier contracts
Often, the term Procurement can be used incorrectly to refer to Purchasing and vice versa, however, they are technically different.
What Is Purchasing?
Purchasing is the acquisition (or placing the order) of products/services on behalf of a business.
The primary roles of a Purchasing team are to:
- Receive purchase requisitions
- Create purchase orders
- Approve supplier payments in line with contractual terms
- Carry out quality assurance of products/services
Why Sourcing, Procurement And Purchasing Are So Important In Business And What It Means To You As A Sales Person
We asked a lot of our procurement friends, sales leaders and searched our own knowledge base. We’ve combined this thinking into something we call the Procurement Success Equation.
Ultimately, the combination of Strategic Sourcing, Procurement and Purchasing is designed to ensure a business (and its shareholders/external-stakeholders) benefits from :
- Savings and ROI
- Innovation in the supply chain
- Quality and reliable delivery from its suppliers
- Sustainability (ESG) and DE&I in its supply base
- The assessment and management of supplier risk
- Strong governance around the supply base
For you as a sales person, understanding how these functions work, and their objectives, could give you a competitive advantage. When you meet procurement, you need to take off your sales-hat and put on your risk-management and negotiation-hat.
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