The primary difference between procurement and strategic sourcing is that, while in traditional sourcing or procurement, the focus is primarily on the cost per unit, strategic sourcing evaluates the best possible value and Total Cost of Ownership with a view to optimizing the supply process by developing long-term, mutually beneficial partnerships with suppliers. In essence, it factors in three principal components – organizations spend profile, market circumstances, and suppliers.
An e-procurement software is only a platform to automate the procurement processes and does not have features to take care of the upstream activities in procurement like strategic sourcing, spend analysis, category management, contract management, etc. it just takes care of the transactional aspects of procurement like product catalog maintenance, raising purchase requests, Purchase Order (PO) generation, invoicing suppliers, receiving payments, etc.
Whereas a strategic sourcing solution helps with strategic sourcing management by standardizing sourcing requirements and providing a platform for gathering information about suppliers, products, markets, and business requirements. There are four key functional components in a strategic sourcing solution:
1. eSourcing/Strategic sourcing – A system for identifying buying requirements across the organization by consolidating demands from various systems like PLM, MRP, ERP, etc or buyer requisitions, r developing RFXs – RFIs, RFQs, or RFPs, requesting supplier proposals, and evaluating the bids received.
2. Spend analysis – Helps organizations to categorize spend data for enhanced spend visibility and do an in-depth analysis of the data. It helps businesses to quantify spend by supplier, category, parts, etc to identify opportunities for costs reduction and supply base optimization.
3. Contract Management – Enables organizations to document, track and manage their supplier contracts.
4. Supply Relationship Management (SRM) – SRM helps organizations to solicit and manage supplier information, monitor their performance, and manage supply risks.
