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What is the Difference Between Strategic Sourcing & Purchasing?

Buying materials for product production and services is a necessary expense for most companies. However, keeping those expenses to a minimum while achieving the most value from suppliers is frequently an ongoing challenge for business owners. Fortunately, there is a way to successfully bargain-hunt in the material and service procurement process: strategic sourcing. In this article, we at Ashley Capital Group will explain the differences between traditional purchasing and strategic sourcing to help you better understand how to mitigate high purchasing costs and get more than just the required materials out of the deal. 

Purchasing

Purchasing is the traditional (and easiest) way to get the products your company requires. It essentially follows this basic administrative scheme: 

  • Company needs a Supplier’s product to manufacture its own products. 
  • The Supplier prices the required product. 
  • Company buys the product at the prices set by the Supplier.
  • Company uses the purchased product to make its own products.

This traditional method puts minimal value on developing lasting, growing, and profitable Client-Supplier relationships, excluding the simple symbiotic relationship developed from the action of acquiring goods or services. 

Strategic Sourcing 

This strategy is a more intense and profitable method for larger businesses to acquire goods and services through selecting and managing suppliers. Rather than buying a large quantity of products from a supplier for the lowest prices, companies can choose to do their due diligence and be more selective of their partnerships. They can negotiate sustainable supply contracts that are mutually-beneficial, ensuring high product quality and quantity (as opposed to just buying necessary products wholesale). 

This method is more strategic, designed to leverage suppliers, exploit what they can do, and achieve better cost efficiencies. It usually follows this process:

  • Company needs a Supplier’s product to manufacture its own products. 
  • Company meets with various Suppliers and proposes a partnership and a supply contract with the best Supplier.
  • Both entities benefit from the contract.
    • The Supplier is paid for its products and turns a profit.
    • The Company acquires the goods for agreed-upon prices and then profits from reduced acquisition costs, higher quality goods, and resulting customer satisfaction.   
  • A strong, long-lasting Company-Supplier relationship is formed.

Strategic sourcing is typically born from an existing Purchasing relationship and develops into an advantageous partnership. 

At Ashley Capital Group, we have experience with business mergers and acquisitions and are experts in effective supply chain management. If you want to learn about developing strategic investment partnerships or strategic sourcing and purchasing, contact us online or give us a call today! 

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