Different authors apply different meaning to the terms Purchasing, Procurement, Sourcing. To avoid potential misunderstanding here are the definitions used by Professor Philippart. Those definitions do not have the ambition to become industry references but merely to clarify our discussion. By extension, the names sometimes also define the organizations that perform the processes.
Sourcing
Sourcing is the proactive management of a supply market to ensure access to adequate resources required for the long term needs of the firm: understand market characteristics, identify relevant potential suppliers, define a strategy for the firm, and set the objectives for any market shaping effort. Sourcing frames the agreement with the suppliers involved in the strategy, without necessarily going into the details of the contract. Sourcing teams include elements internal and external to the firm to reach their objectives, to include the eventual optimization of specifications in coordination with engineering, marketing, and / or research. Sourcing is the strategic management of external resources.
Purchasing
At the other end of the external resource management activities is Purchasing. Purchasing, is sometimes used with the same meaning as procurement, sometimes more narrowly to define the transaction resulting in the acquisition of a good or service. When we use “Purchasing” in this book, we mean those transactional activities.
Collaboration
To collaborate is “to work jointly with others or together especially in an intellectual endeavor”[1]. Not all Sourcing processes are collaborative in this sense. Reverse auctions for example are legitimate but not collaborative: the interest of one party, the one running the auction, is to commoditize the resource required, treat all suppliers equally and force them to fight to win the orders.
Equally, not all collaborative processes are Sourcing. This book, for instance, is not about “Collaborative Planning, Forecasting & Replenishment (CPFR®)”. Although CPFR is collaborative and involves suppliers, it is not a strategic process; it optimizes industry wide transaction frameworks. The CPFR committee is made up of retailers, manufacturers, and solution providers. This group has developed a set of business processes that entities in a supply chain can use for collaboration on a number of buyer/seller functions, towards overall efficiency in the supply chain. In essence, being an industry wide initiative, it will not have a strategic impact. All participants can benefit from the results of its work. It is an essential tactical improvement that cannot be ignored but it is not differentiating and therefore not contributing to sustainable competitive advantages. (More on CPFR in chapter 7)
Collaborative Sourcing
The intellectual endeavor, in “Collaborative Sourcing” is the joint pursuit of competitive advantages for the parties involved. Therefore, in this book, we use the term “Collaborative Sourcing” specifically to define the strategic Sourcing activities done with providers of resources external to the firm, when all the parties involved work together to maximize the benefit for all rather than in an adversarial way to allocate value between involved parties. Collaborative Sourcing is the alignment of the extended enterprise to better compete versus other extended enterprises, and capture a superior position to dominate a segment of the market.[2]
Procurement
For some, Procurement does not include Sourcing but deals with the short and medium term issues of supplier management. On the other hand, many firms use now the term “Chief Procurement Officer” as the highest level responsible for the management of external resources, and the supplier interface. Therefore, we will use the term Procurement to discuss broadly of its responsibilities, starting with the Sourcing and extending to include the transaction and the optimization of supply. The CPO is the member of the management committee in charge of maximizing the value created from all the resources external to the firm.
A more descriptive title for a CPO would probably be “Chief Sourcing and Purchasing Officer”. It would
separate the Sourcing activities, understanding and shaping the markets to
derive a strategy, from the Purchasing activities, managing operationally the
relationships between external resources and the enterprise. Practically, such
a long denomination cannot survive, hence the acceptation of CPO as the
all-inclusive term to identify the executive in charge of all the external
resources optimization. Therefore, the CPO is the executive acting on
behalf of the CEO to provide the right external resources to allow the firm to
protect and create value. This role can go significantly beyond the
traditional activities associated with Procurement. For instance, in a life
science company, the CPO is leading an effort to secure the supply of a product
not available today in sufficient quantity, but that is essential to produce the
goods that will triple the revenues of the firm.
