Purchasing, Procurement and Strategic Sourcing

This set of vocabulary flashcards defines the core differences between purchasing, procurement, and strategic sourcing, and details the five-step procurement process based on the LSCM244 lecture.

Purchasing

The transactional, operational activity of buying goods and services for daily operations, including issuing purchase orders and making payments.

Procurement

A broad process of acquiring goods and services from external suppliers that includes identifying needs, selecting suppliers, negotiating contracts, and managing supplier performance.

Strategic Sourcing

A proactive, high-level approach to selecting suppliers and managing relationships that aligns supply strategy with long-term organizational goals to create competitive advantage.

Transactional

A characteristic of purchasing that focus on short-term activities and individual buying events rather than long-term partnerships.

Procure-to-Pay ($P2P$)

The operational component of procurement that covers receiving purchase requisitions, creating orders, receiving goods, and processing payments.

Step 1: Identify the Need

The first stage of the procurement process where the organization defines requirements, develops specifications, and obtains internal budget approval.

Step 2: Supplier Identification and Evaluation

The stage where potential suppliers are identified through market research and evaluated based on quality, price, capacity, and reliability.

Step 3: Supplier Selection and Contract Negotiation

The phase where the most suitable supplier is chosen and contracts are established to define pricing, delivery schedules, and quality standards.

Step 4: Order Placement and Delivery

The stage in which purchase orders are issued, goods are manufactured or prepared, and receiving departments inspect deliveries for quality and quantity.

Step 5: Performance Evaluation

The final stage of procurement involving continuous monitoring of suppliers based on delivery reliability, quality, cost, and responsiveness.

Total Value

The focus of strategic sourcing where suppliers are evaluated based on quality, innovation, sustainability, and risk rather than just the lowest price.

Delivery Note

A document used during the purchasing process to serve as proof that goods were received correctly.

Purchase Order ($PO$)

A document issued to a supplier to formalize a request for goods or services and initiate the manufacturing or delivery process.

Purchase Requisition

The internal document received by the purchasing department to initiate the buying of required products or services.

Supplier Performance Measures

Variables used to monitor suppliers, specifically including delivery reliability, quality, cost, and responsiveness.