When it comes to sourcing and procurement, the two words are frequently used interchangeably. But the fact is that although they’re related, they’re defined completely differently. To help you understand the difference between the two, we’ve put together an article to answer the question of, “What is sourcing and procurement?”
Sourcing is the process of finding materials, goods or services. Sourcing is actually the beginning of the procurement process – something that we’ll cover later on.
Once a company or business has identified a need for certain materials, goods or services, the sourcing process begins. This means identifying suppliers that may be able to meet those needs.
The suppliers should not only be able to provide what’s needed, but they’ll also need to be able to do it reliably and at an acceptable price. For this reason, potential suppliers need to be vetted to ensure they can meet the needs.
Once it appears that a supplier can provide the expected supplies or services pricing quotes should be requested. Once a price list has been obtained, further negotiation will enable agreement on terms and conditions regarding shipping, payments, returns and other specifics.
The process of sourcing should provide assurance that the supply is dependable, the prices are reasonable and stable, the quality is appropriate, and the general terms and conditions are agreeable.
Sourcing can involve a single supplier or several suppliers depending on the company’s needs. Part of the sourcing process is having a backup plan in case a supply chain breaks down. Sourcing can also help discover cheaper, more reliable or higher quality suppliers, so the process should be ongoing.
Procurement is the entire process of sourcing, purchasing, receiving, paying for and documenting the acquisition of materials, goods or services.
Procurement requires having the internal mechanisms in place to work with external suppliers, manage the interactions and properly deal with the goods or services provided while remaining within budget and other in-house guidelines.
Procurement begins with identifying the needs of the business and sourcing those goods or services. Once a supplier has been secured, purchase orders are made to acquire the goods or services. The goods or services are received and documented as such. Upon receiving an invoice it’s matched with the purchase order and delivery documents and the supplier is paid.
Sourcing is an integral component of the procurement process. Sourcing is necessary to identify appropriate suppliers and secure their services.
The process of procurement uses sourcing as its starting point but continues on to request, receive, pay for and document the required goods or services.
In smaller organizations both these functions may be able to be managed by a single person or team. However, in larger organizations they may be split up into different departments to promote efficiency.
When sourcing and procurement are separated, the sourcing team acts to ensure supplier relationships are properly managed, the prices and costs remain acceptable and risks to the supply chain are minimized.
With sourcing taken care of, procurement teams can focus on ensuring the correct amounts of goods or services are ordered, delivered, documented and paid for.
The future of sourcing and procurement is definitely headed towards automation. Software based sourcing and procurement solutions are becoming more popular because they drive down costs while reducing the risk of human error. As businesses become more complex, technology is able to provide more efficient control of sourcing and procurement functions.
To learn more about how a Managed Service Provider like MBC can help support your organization’s IT procurement, get a free assessment today.