Although procurement professionals use the terms sourcing and procurement interchangeably, they are actually two related but different processes. So let’s take a look at what each term means, how it should be used, and when:
What is sourcing?
Sourcing is the process of selecting suppliers that provide goods or services. Sourcing suppliers is just the first step in the supply chain process.
Choosing the right suppliers is crucial. The further we go down the supply chain, the harder it is to track and correct mistakes.
Therefore, companies expect the sourced goods and services to be of high quality, low costs, and delivered on time.
Selecting a supplier requires research and strategy. Getting to know suppliers and ensuring their product will deliver the best results has a monumental impact on your business. You need someone you can trust and someone you can rely on now and in the future.
Do you want to learn more about how you can create an effective sourcing and procurement strategy to save time and money? Check out our guide.
What is procurement?
Procurement is the set of tasks associated with buying a product or service.
The procurement process covers all the tasks that happen before, during, and after the purchase of goods and services. It starts with the identification of needs and ends only when the need is fulfilled or no longer exists.
A complete procurement process consists of:
Identifying internal needs;
Researching the market;
Shortlisting potential suppliers;
Creating an approved list of suppliers;
Creating an online purchase order;
Requesting proposals and evaluating quotations;
Selecting the right supplier;
Developing and managing contracts;
Obtaining invoice approvals and fulfilling payment terms;
Establishing a good supplier relationship.
Funnily enough, procurement is also often mistaken for purchasing. But just like sourcing, purchasing is only a small subset of the broader procurement function that includes activities like ordering, expediting, receiving, and fulfilling payments.
The difference between sourcing and procurement
Though there is a clear difference between the functions of procurement and sourcing (sourcing is just a small part of the procurement cycle), often, smaller organizations combine the two.
And because it’s so easy to mistake one for another, here’s a diagram that further illustrates how procurement and sourcing are different.
Sourcing vs Procurement
As you can see, sourcing focuses on identifying internal requirements, researching suppliers, running sourcing events, evaluating responses, and awarding suppliers. Procurement, on the other hand, encompasses multiple processes: sourcing, contract management, requisitioning, purchasing, payments, analysis, and supplier management.
E-sourcing + e-purchasing = e-procurement
The first step in the e-sourcing process is identifying the need for goods and services. Then, depending on each organization’s needs, various strategies can be implemented to find the right suppliers. Contracts are negotiated only with suppliers that are favorable both logistically and financially.
E-purchasing can be viewed as the transaction and compliance part of procurement. This includes requisition, authorizing, ordering, receipts, and payments for supplies. E-purchasing is e-sourcing’s counterpart; it performs the process electronically and begins once the supplier contract is signed.
E-sourcing can be used strategically to ensure that the best pricing and value are locked in the contract, while e-purchasing is strictly tactical to ensure the optimal flow of goods and services based on the contract.
Though they are different processes, both e-sourcing and e-purchasing are necessary for efficient, streamlined ordering, and to keep costs as low as possible while maintaining excellent relationships with suppliers.
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