Strategic Sourcing and Strategic Procurement: What’s the Difference? (For Supply Professional Magazine)

Posted on June 20, 2022


Type into the Google search box the words “what is strategic procurement?” and see what comes up.

Even with the improvement in Google’s algorithms over the years, the competing results may make you scratch your head. It seems that there is little if any, difference between the term “strategic procurement” and “strategic sourcing” as both come up using the above search term.

For example, one result defines strategic procurement as follows: “Strategic procurement incorporates actions aimed at reducing the supplier base, negotiations, communication and maintaining long-term relationships with suppliers (Ryals and Rogers, 2006; Swinder and Seshadri, 2001).” Note the date of the earlier reference – 2001. I will get to that shortly.

Another result – this time for strategic sourcing asserts that “Strategic sourcing is a procurement process that continuously improves and re-evaluates the purchasing activities of a business in order to reduce costs.” Is it just me, or is the word reduce or reduction overemphasized in our profession?

Besides wondering how many of us consider strategic sourcing and strategic procurement to be two sides of the same coin, I can’t help but think: are the narrow definitions versus the differentiation between the two the issue.

“Strategic procurement, also known as strategic sourcing, refers to the long-range plan to ensure a timely supply of goods and services that are critical to an organization’s ability to meet its core objectives.” – A P2P Service Provider

A More Complex Evolution?

What do I mean when I talk about “narrow definitions?”

Here is a little history lesson for those new (or newer) to our industry. Strategic sourcing first became a thing in the late 1980s (or early 1990s). Its adoption was initially confined to “large companies” to “quantify and increase vendor return on investment (ROI).”

As you consider the origins of strategic sourcing in the 1980s and the introduction of strategic procurement in 2001, you can see why the view of the two disciplines are interchangeable. In other words, it appears that rather than there being a difference, one marginally evolved from the other.

Swinder and Seshadri provide an example of this narrow evolutionary path in the following statement that the “cooperative negotiation with a small base of suppliers” reveals the “impressive ability of the purchasing function to enhance shareholder‐value.”  It sounds like it is close to the ROI reference to strategic sourcing, the only difference being that said ROI is “extended” to include shareholders.

Based on the above, inserting the word “procurement” after strategic is a misnomer because procurement’s evolution over the past few decades is far more complex and demanding.

Not Just About Cost Anymore

The Deloitte Global 2021 Chief Procurement Officer Survey reports that “With changing business dynamics and increasing layers of complexity, expectations of the CPO role have increased.”

The changing “business dynamics” and “increasing layers of complexity” mean that procurement “isn’t just about cost savings and operational efficiency anymore.”

When CPOs talk about dynamics and complexity, they say that there is “so much more to Procurement today.”

The more to which they refer includes “innovation, digital transformation, introducing new products and services,” and “other factors such as climate change, geopolitical stability, increasing societal expectations, and world health.”

To put it another way, the word “strategic” with procurement takes on a whole new meaning.

STRATEGIC versus strategic

As it is probably becoming more apparent to you each day, the role of procurement has been elevating to a whole new level of acknowledged importance since the pandemic began.

Terms such as supply chain disruption and rising costs are now a normal part of our everyday vernacular. Let’s face it – the world now realizes what we in the industry have known all along; there is no single part of our daily lives that is not touched by global supply chains and, therefore, procurement.

This awakening by the general public has thrust what we do into a very bright spotlight making our quest for getting a seat at the table a moot point.

The real question we must ask ourselves is if we are ready to be truly STRATEGIC?

Stuck In The Past

Late last year, I had the opportunity to speak with AT Kearney Partner and Futurist Dr Elouise Epstein.

During that discussion, the author of the book Trade wars, pandemics, and chaos observed that there are challenges with outdated curriculums. As a result, many educational programs require a reboot to reflect the new demands of what is now a high-profile industry and profession.

While it is not the only reason, Dr Epstein’s point is well taken. Lagging education and, more specifically, curriculums that no longer meet the demands of a more complex world are noteworthy – which is reflected in the numbers.

Going as far back as 2016 and every year since – with varying degrees of fluctuation, most CPOs believe their teams “do not have the necessary skills to deliver their procurement strategy.”

In conjunction with this last point, what is equally concerning is the growing talent gap in procurement.

Filling The Gap

In her recent article, Chief Procurement & Supply Chain Officer at Tesca Group, Nadia Stoykov, referred to the fact that between 2018 and 2028, “there will be 2.4 million unfilled (procurement) positions with a potential economic impact of $2.5 trillion.”

This statistic means that organizations will have an additional challenge in becoming strategic in their procurement practices beyond updating their current team’s skillsets. I am talking about both attracting and retaining new talent.

Stoykov refers to this when she talks about reports that “the average “new hire” only lasts 18-months before moving on to another company.” What makes this rate of turnover even more troubling is that it applies to front-line staff and goes all the way up to more senior management positions.

In a world that is becoming increasingly volatile, uncertain, complex, and ambiguous (VUCA), strong leadership and team stability are even more of a necessity – especially when it comes to the emergence of new digital possibilities.

A Whole, New Meaning

A June 2021 McKinsey article about inflation and volatility calls out our profession to step-up and take the lead responding to the “urgent challenges in the current market, as well as any future uncertainty.”

From cross-functional collaboration to establishing a “nerve center” that “brings together a team of specialists from supply chain, planning, finance, operations, and engineering,” strategic procurement has taken on a whole new meaning.

In response to this brave new world, there is the belief that procurement can deliver significant value to enterprises. Of course, there is a caveat here; organizations can only realize this value if it is “armed with the right capabilities for pursuing sophisticated approaches.” Now that is what I call being STRATEGIC.

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