1. Describe and discuss the differences and relationships between purchasing, pr
ID: 390887 • Letter: 1
Question
1. Describe and discuss the differences and relationships between purchasing, procurement, and strategic sourcing. How have these concepts evolved?
2. Using the quadrant or risk/value technique, categorize the importance of the following items for an automobile manufacturer: engine, tires, gasoline, paper for the employee newsletter, a uniquely designed and engineered muffler, and rail car service to dealers. Describe the rationale you used to ascertain each categorization.
Explanation / Answer
1)
Purchasing - It is the process of buying required goods or services which involves placing the purchase requisition in form of order
Procurement - It includes broad range of activities which is related to purchase of goods and services like supplier selection, price negotiation, vendor qualification, contract management, supplier reliability issues, managing supplier performance etc. So, it is different from Purchasing but helps or supports the purchasing team
Strategic Sourcing - It is the more higher level of process which examines the Procurement as part of entire Supply chain and how Sourcing decisions could impact business activities including Sourcing. So, it deals more with Value creation, Risk mitigation in the network, building agile and resilient supply chain to support the business requirement. So, it helps to build refined Purchasing and Procurement set up to support the requirement
The purchasing has been going on since beginning where orders were placed and material were procured. At that time, procurement and purchasing was considered same. Supply chain during 1970s got impacted due to globalization of activities and impact on pricing basis international events. It was mainly linked to fuel price fluctuation. As a result, Procurement gained importance and evolved separately. The Strategic Sourcing is a new phenomenon and has been in existence from past 2 decades. It is more advance planning to avoid the future risk. It came up due to rapid changing environment and situation. In order to make supply chain more responsive and reliable, Strategic Sourcing has gained considerable importance.
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