Supply Chain

Management,
11e
Chapter 5: Sourcing Materials and
Services

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 Discussion Outline
• Strategic evolution of sourcing process (purchasing, procurement,
and strategic sourcing)

• Types of purchasing activity and quadrant technique

• Strategic sourcing process

• Total landed cost concept

• E-sourcing, e-procurement, and e-commerce

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 Strategic Evolution of
Sourcing Process
(Purchasing, Procurement,
and Strategic Sourcing)

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 Purchasing vs. Procurement vs.
Strategic Sourcing
Purchasing is an activity that follows conduct of a formal sourcing process,
while procurement and strategic sourcing are best described as processes.
Strategic Sourcing
• Managing procurement priorities such that they are well-aligned with goals and objectives of the supply
chain and of the overall organization.

Procurement
• Managing a broad range of activities within the procurement process (e.g. supplier selection, price
negotiation, contract management, supplier performance management).

Purchasing
• Managing a firm’s acquisition procedures and standards, involving largely transactional activity of the
buying of products & services.

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Types of Purchasing
Activity and Quadrant
Technique

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 Types and Importance of Purchases –
The Quadrant Technique
Not all items /services purchased are of equal importance, requiring varying
procurement strategies based on their value and risk.

Source Figure 5.3: C. John Langley Jr., Ph.D., Penn State

University, Used with permission.
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Three Types of Purchasing Activity

Source Figure 5.4: C. John Langley Jr., Ph.D., Penn State University, Used with permission.
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 Strategic Sourcing

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 Strategic Sourcing
Five Core Principles
1. Assess total value. Emphasis beyond acquisition cost, evaluating total cost of ownership and the value
of the supplier relationship.

2. Develop individual sourcing strategies. Individual spend categories need customized sourcing
strategies.

3. Evaluate internal requirements. Requirements and specifications thoroughly assessed and rationalized
as part of the sourcing process.

4. Focus on supplier economics. Suppliers’ economics understood before identifying buying tactics (e.g.
volume leveraging, price unbundling, price adjustment mechanisms).

5. Drive continuous improvement. Strategic sourcing initiatives as subset of continuous improvement

process for procurement and sourcing organizations.

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 Strategic Sourcing Process

Source Figure 5.5: C. John Langley Jr., Ph.D., Penn State University, Used with permission.
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 Strategic Sourcing (1 of 2)
Steps 3–5: Supplier Portfolio Screening

Source Figure 5.6: C. John Langley Jr., Ph.D., Penn State University,
Used with permission.
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11