Procurement strategies today, form part of business planning right from the nascent stages. In order for the firm to be cost effective, sourcing and procurement process have to be streamlined and have to take a long term view. Earlier, firms used to go for the vendor which supplies raw material at the lowest costs available in the market, on a need basis, and moved onto the new supplier next time. Building a relationship was unheard of, with confrontational approach defining their touch-points. Limited number of supplier base were built and dealt with. Eventually, both parties learnt that this type of approach was too short sighted to be effective and meaningful.

The next level in procurement evolution was what came to be called as Strategic Sourcing. Here, the emphasis was on taking a longer term view of things, sometimes even at the expense of more costs to the company. Supplier relationships took a U-turn, wherein both parties realized that they are part of the same eco-system and success to one, guaranteed success to another, most of the times. Here, the focus was on picking up a number of suppliers who provide reasonable prices and quality material, and then forging a long term relationship with them. This was a win-win situation for both the parties, as the suppliers felt secured and the firms can avoid the delays and associated costs in finding a new supplier every time. Also, there was sea-change in the way the pricing was looked at – moving from a lowest unit cost to lowest landed cost to lowest total cost to the firm and finally to the highest total value to the ultimate customer of the firm.

E-procurement and e-commerce, though being a technological approach to sourcing rather than a having a fundamental difference in approach, did bring a lot of re-engineering in the procurement process. A whole lot of processes were made redundant and non value adding roles were done away with. Online management of RFX’s were made possible and advance analytical tools were employed for supplier selection, bid, spend, and performance management analytics. Online negotiations, collaboration within and outside the organization, and contract management were facilitated with electronic procurement. It brought down the operating costs, reduced paperwork and sourcing time, and improved control over inventory and spending. It also brought down the cycle time and communications between the stakeholders were far more improved.

Integrated sourcing/ supply chain forms the next level of procurement evolution. Vendor managed inventory, supply chain visibility of sourcing decisions to the suppliers brings about a greater transparency in the system, which gets reflected in the service levels and performance of the suppliers. Closing the link between sourcing and procurement brings about tangible reduction in costs and ensures compliance to contracts and policies. Integrated sourcing makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory in the supply chain. Firms though, have their apprehensions in making suppliers a part of decision makers for them and therefore, are reluctant to implement the idea.