Sourcing VS Procurement

Sharline Shaw

Procurement and sourcing services are integral to supply chain management. These are two crucial business processes. 

Procurement and sourcing are two separate departments that work together to acquire supplies for a company.

While both departments get supplies, they work differently. Knowing how the two differ can help the appropriate departments coordinate more efficiently.

You can then make sure your company adopts the right strategies to improve sourcing vs procurement.

How do sourcing and procurement differ? Throughout this article, we’ll examine sourcing vs procurement.

You will know the key differences between the two.

Sourcing & Procurement

What is Sourcing?

Sourcing involves identifying the businesses needs and finding new suppliers.

Additionally, it consists in developing a network of alternate vendors. Your resources will depend on the level of detail you can dedicate to sourcing. 

Understanding the needs of a sourcing company is the first step in sourcing. Sourcing managers then establish an ideal supplier quality list.

After evaluating all suppliers, the company contacts potential suppliers and requests for more information about raw materials. 

Furthermore, they ask suppliers to send them a quotation.

When the sourcing team has the right information, they narrow their options and sign contracts with the right suppliers.

An agreement is signed with the vendor who best meets the company’s needs. From there, the company starts establishing healthy relationships with the supplier. 

Sourcing Process

  • Selection of vendors
  • Assessment of vendor costs
  • Obtain vendor information
  • Evaluation of initial suppliers
  • Research and development of vendors
  • Budget analysis and setting targets

What is Procurement?

What is Procurement?

Procurement is the entire process of acquiring goods and services from suppliers.

A purchase order is given to the vendor based on the sourcing contract. This way, a company can ensure the delivery of goods and services and timely payment. 

Procurement refers to anything that helps a company to buy goods. If there is no sound procurement strategy, it is hard to get the essential products.

A company’s ability to manage all these processes effectively gives it an advantage over time. Planning can help an organization grow. Furthermore, every step of the process can work in harmony. 

Procurement Process

  • Procurement activities and strategic sourcing.
  • Vendor management and negotiation.
  • Assurance of supplier quality
  • Choosing the right products and services.
  • Issuing purchase orders.
  • Tracking material receipts.

Sourcing & Procurement: The Key Difference

Both deal with the material supplies which companies require to run their business.

The sourcing process simplifies procurement. Sourcing provides the organization with a list of the necessary suppliers. In contrast, procurement handles acquiring the supplies needed to operate the business.

The sourcing process occurs before procurement. It involves identifying suppliers. This process also collects vendor and product information.

Finding the right balance between pricing and profit margin is key to strategic sourcing. Comparatively, procurement entails seeking out information about products, buying them, and delivering them.

An effective strategy is necessary for successful procurement.

The procurement department ensures that the company gets all the products and materials it needs. Meanwhile, sourcing makes them available. 

The sourcing department signs the contract with the buyer on specific terms and conditions. Contrary to this, procurement ensures that delivery is confirmed in accordance with the purchase order.

A sourcing team keeps track of alternate suppliers while a procurement team monitors delivery dates and quality.The sourcing team looks for suppliers with lower prices.

It enables companies to select cost-saving vendors according to their suitability to save money. It facilitates long-term relationships with manufacturers.

Conversely, procurement pays attention to the supplies they require. It involves procuring a product or service and releasing payments after delivery.

The two functions typically work together, but that isn’t always the case.

Finding and vetting suppliers does not always require a sourcing team. The procurement departments can manage indirect vendors.

How to Coordinate Sourcing & Procurement?

How to Coordinate Sourcing & Procurement?

The success of a supply chain depends on effective communication. Yet, this is one of the greatest areas for improvement. Both sourcing and procurement departments can experience communication problems.

This can cause major problems such as material delays, getting the wrong material, etc.

Sourcing requires procurement data to ensure that the company works with suitable suppliers.

By contrast, procurement requires sourcing statistics to accurately forecast spending and cut costs.

Therefore, the procurement professionals and sourcing department should be in communication. You will reap the benefits of these teams coordinating well. Must-have features include:

Improving communication

Proper coordination involves effective communication between sourcing and procurement teams. Effective coordination can achieve positive results.

When coordination between the sourcing and procurement teams is good, there is no chance for errors to occur

Drive Productivity

Unpredictable communication and a lack of cohesion hamper productivity. Keeping a professional attitude is essential to increasing your productivity.

Looking for the Best Sourcing Company?

Leeline Sourcing helps buyers source the right product with the best cost.

What Are the Best E-sourcing & E-procurement Methods?

best e-sourcing & e-procurement methods

An eSourcing process is used to identify and approve procurement needs electronically.

The use of e-Sourcing platforms enhances the tendering process.

In eSourcing, all the sourcing processes are conducted electronically, and bids, quotes, and proposals from multiple vendors are collected and processed.

In contrast, eProcurement begins with the actual contract. eProcurement consists of managing the procurement process electronically and ensuring compliance.

Electronic procurement is very like manual procurement but much faster.

Businesses now have to deal with many suppliers and purchases. E-sourcing has become an essential part of strategic procurement for companies.

The method of e-sourcing involves gathering the below information. 

RFI – Request for Information

Usually, online sourcing begins with detailed RFIs. Pre-qualification questionnaires (PQQs) are commonly used for requests for information.

Bidders are required to submit RFIs or PQQs before being publicly invited to a tendering event. 

eSourcing saves all data, allowing you to quickly locate supplier details and learn more about your bids. To enter your eSourcing session, suppliers must submit their questionnaire for your approval.

This helps you identify potential bidders who might not be appropriate.

RFQ – Request for Quotation

Requests for Quotation (RFQ) may be useful when going to tender to determine current market pricing.

Using your eSourcing platform, you can send RFQs to suppliers who have previously filled out RFIs. Quotes are useful for setting starting points for eSourcing sessions.

Using this system is beneficial for firms with strict budgets and non-complex tenders.

RFP – Request for Proposal

Requests for proposals may be preferable to RFQs. Typically, this request is for a document detailing the proposal’s relevance to the project.

RFPs describe how suppliers will provide the specified services. A key benefit is that the RFP can be hosted on an eSourcing platform.

RFP questions are shared in a collaborative space, allowing simpler comparisons between responses.

Since RFQs are not as complex as RFPs, many businesses prefer them. 

eAuction

After obtaining supplier quotes, you may want to consider an eAuction. Bidders compete for contracts through dynamic, competitive eAuctions.

It is common to use eAuctions to find the best price available in the market.

In contrast, An eProcurement cycle is similar to a traditional procurement cycle.

During the procurement process, there are several steps:

Customer Needs Products

The purchasing process begins by identifying or anticipating what the customer wants.

To determine the need, they rely on electronic documents. For example, purchase requisition, stop check, and reordering routines.

Purchase Approval

Various steps may be involved at this stage based on the size and nature of the purchase.

Small purchases are allowed using e-procurement systems without approval.

Electronic Submission

Some organizations use electronic submissions, while others rely on mail or fax for material releases.

Using electronic data interchange (EDI) can shorten order cycle lead time.

Using Procurement Software

Buying and selling goods and services can be done online with procurement software.

The procurement software provides digital and automated decision-making tools. The e-procurement software makes it easy to complete all procurement processes. 

FAQs

Sourcing vs Procurement

What is the importance of the procurement process in the supply chain?

Business operations are inextricably linked to procurement and supply chain management.

These two functions cannot be separated. Effective procurement plays a vital role in the success of any firm.

Supply chains cannot function smoothly if procurement is ignored, or vice versa.

Therefore, procurement is even more important.

Is it worthwhile to reduce costs in the supply chain?

The cost of its supply chain often inflates a product or service’s sales price.

Lower costs are passed on to customers. Net profits will double when supply chain costs are reduced from 9% to 4%.

Increasing profits without increasing sales is the big attraction of cost reduction in a supply chain.

It is, therefore, crucial to focus on supply chain cost reduction.

What does dual sourcing mean?

Essentially, dual sourcing is working with more than one supplier for the same product.

Two suppliers are used for the same raw material, product, service, or component. 

Since dual sourcing entails working with multiple companies, it is usually more cost-effective.

Furthermore, dual sourcing enables easier sourcing processes. Dual sourcing must be justified to manage risk and simplify processes.

Firms use a dual-source approach to reduce the risk of going with a single source.

However, procurement managers make a conscious decision to pursue single sourcing.

Which procurement and sourcing software is available?

In the market, a variety of software is available for procurement and sourcing.

With easy integration, these softwares can skyrocket your entire procurement process.

Additionally, you can receive real-time reports on your procurement. 

Choosing the right software for managing your sourcing is, however, a critical choice. So make your choice carefully.

If you need help making your choice, you can ask your supplier standard questions like minimum order quantities, requirements, and material quality. 

How can procurement processes help manage supply chains?

An important step in the supply chain is the procurement process.

You can optimize the procurement process and supply chain by choosing the best suppliers and negotiating the best contracts.

Consequently, production time and costs will decrease.

Final thoughts

Sourcing vs Procurement

As part of the successful supply chain, sourcing and procurement go hand in hand.

One without the other doesn’t have quite the same impact. The supply chain functions properly when both are available. 

With the advancement of technology, companies are now sourcing materials via electronic services. Electronic sourcing strategy and procurement save firms time and effort.

Additionally, it helps reduce costs, streamline vendor relationships, and improve record-keeping. 

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sharline

Article by:

Sharline Shaw

Hey I'm Sharline, the founder of Leeline Sourcing. With 10 years of experience in the field of sourcing in China, we help 2000+ clients import from China,Alibaba,1688 to Amazon FBA or shopify. If you have any questions about sourcing , pls feel free to contact us.