On the surface, it is quite easy to mistake sourcing and procurement as being synonyms for securing supplies for an organization. However, they are not. Yes, they are both related and certainly play pivotal roles within the supply chain, but they are quite different, and it is important that you understand those distinctions.
In this article, we’ll take you through everything you need to know about sourcing and procurement, and their key differences.
What is procurement?
So, what is procurement? Well, simply put: procurement is the process of acquiring goods and services for an organization and its operational requirements.
Sounds simple right? We’ll elaborate further, shortly…
What is sourcing?
Sourcing is the process of going through multiple suppliers, vetting, selecting, and managing them in order to provide an organization with everything they need for their day-to-day operations.
In essence, sourcing is tasked with carrying out all kinds of research, devising and executing strategies, and ultimately choosing a supplier that meets and exceeds said criteria. In doing so, sourcing allows you to maintain an organizations supply chain and guarantees that they will always have all of the tools that they required to meet and deliver their objectives on a daily basis.
So, as the name suggests: sourcing refers to creating sources through which supplies can flow to an organization. Procurement on the other hand, refers to the physical procurement of those supplies and the logistics involved with getting them from A to B.
What are the main differences between sourcing and procurement?
So, now that we understand what sourcing and procurement are, what are the key differences between the two?
You see, procurement and sourcing hold many similarities, which explains why many people frequently get the two mixed up—or indeed use both terms interchangeably. However, to understand each one, first we must look at what makes them distinctly different.
Here are the key differences between both sourcing and procurement:
- Sourcing creates supply chain channels that procurement uses to acquire supplies.
- Procurement is the process of procuring inputs, materials, and goods that an organisation needs to function (whilst sourcing makes up the entire body of effort that is required for building, managing, and maintain vendor relations, such as vetting suppliers and creating a supply chain of vendors that are crucial in an organization’s needs).
- One way of looking at it is: procurement focuses on the ‘what’ of supplies, whereas sourcing looks at ‘who’ makes those supplies possible.
- Procurement is all about creating smooth flow of supplies, whereas the sourcing aspect revolves around the supply chain that actually makes said procurement a possibility.
- Sourcing is designed to make procurement easier; this is done by building a solid supply chain filled with strong relationships that were formulated to aid in the actual procurement process.
- Sourcing is also concerned with actually building and maintaining the relationships.
And there are other functions to sourcing as well. A sourcing team can also rely on data that is collected by the procurement team in order to manage supplier relationships and determine as to whether or not it will be viable to continue working with such a vendor, or to terminate the relationship and find a new source. The data collected can provide invaluable information, allowing the sourcing department to leverage the following:
- Requesting new and updated quotes for products
- Picking up vendor information
- Uploading vendor information into a vendor management system for ease of use
- Defining lead time (how long to fulfil XYZ)
- Negotiations and agreements on prices and other contract terms
- Supplier risk analysis (taking into consideration potential down-time and other risks)
- Minimum order quantities, quality metrics, and so on.
From there, procurement then uses the strong and reliable foundation that the sourcing team has put together in order to receive requisitions, order goods, track deliveries, measure, confirm, and record the overall quality and quantity of said goods.
And that about sums it up! Sourcing and procurement are kind of like salt and pepper. One without the other doesn’t quite have the same impact. Both need one another to function properly.
Sourcing sets up the pins; procurement knocks them down. For more details on our process, you can review out 3 phases of Procurement:
Procurement Process – Phase One: Design, Engineering, Prototyping, Legal and Key accounting
Procurement Process – Phase Two: Sourcing, Procurement, Merchandising, Mass Production
Procurement Process – Phase Three: QA (Quality Assurance), Fulfilment, and Logistics