Sourcing and Procurement are part of the same process, although they are not the same thing. They work together to maintain supply chain operations functional and competitive.
Basically, procurement is the act of placing, confirming, and paying orders, following everything to ensure delivery, while sourcing is related to finding and vetting materials and suppliers.
Let’s look deeper at each one of them to establish the differences and how they complement each other, while not forgetting that both are necessary to a healthy supply chain.
Firstly, you need to consider that procurement is the whole process, from end-to-end including sourcing materials, services, and costs. So, it contemplates from placing orders to suppliers to paying them.
It also addresses points such as handling inventory, controlling turnover and storage. Usually, the procurement process is the one that starts overall supply chain operations, because it grants that material needed are in place.
So, it’s strictly necessary to have a solid procurement strategy so the operations can proceed.
Sourcing, as established, is the procedure that comes before purchases are made. So, it is the process of looking for materials and suppliers before you can consider which ones you’ll work with.
It depends on the sourcing process to find trustworthy suppliers. Sourcing is usually a continuous process because when the procurement department identify new necessities, it needs to be sourced.
At a higher level, the challenge of the sourcing phase is to balance quality materials with costs. Ideally, it finds the best materials with the lower costs, maximizing the profitability of the operation.
In a realistic view, it’s not always possible to combine best quality items with low prices, so the function of sourcing is to match the funds of the operation with the options available.
On other words, buying materials too cheap result in lesser quality production.
Finally, sourcing relates to requesting quotes of products, obtaining information from supplier, and informing procurement team. For this, is important to have assess and purchasing needs at hand and a plan to conduct research and identify suppliers.
Sourcing and Procurement Processes
Sourcing and procurement usually go together, to find materials needed to operate the business. But they don’t always need to happen together as you can address ordering in an indirect way, without a sourcing team.
Basically, the procurement process proceeds as the following:
- Recognize company needs.
- Make purchase requisitions.
- Review your purchase requisition.
- Negotiate Contracts.
- Request Quotation.
- Get Budget Approval.
- Receive Goods.
- Match Invoice of Purchase and Receiving.
- Invoice Payment.
- Make Records of Transaction.
As you can see it, the procurement process has a lot of steps and involves the whole operation. The sourcing process is much smaller and has fewer steps:
- Identify consume needs.
- Assess market offerings.
- Develop material specifications.
- Request for information.
Types of Sourcing
Now that we established, they key differences between sourcing and procurement, its necessary to go trough the kinds of sourcing you can do to sustain your procurement process.
Strategic sourcing is responsible for the long term, focusing on saving money and define a plan of purchases. That means that strategic sourcing needs to maintain information of the whole process.
On the other hand, tactical sourcing focus on short-term and reactive choices. Without taking into consideration supplier relationships and risks. Tactical sourcing seeks to the lowest possible cost.
Sourcing and procurement work together to guarantee stock and quality of production. While doing that, an optimized process also leads to cost reduction and increase in profitability.
Although it’s good to have a sourcing process, it’s not always necessary. In the end, sourcing would be the first step on a procurement planning, covering suppliers and resulting in trustworthy information to procurement.