What’s the Difference Between Sourcing and Procurement?
Judging by their surface meaning, it’s easy to think that sourcing and procurement are synonyms for getting supplies for an organization. They’re not. While both are related and play key roles in your organization’s supply chain, they’re quite different and must be employed in different ways to ensure success in your organization. In this article, we’ll define exactly what sourcing and procurement are, why they matter, and how to do both better.
What is procurement?
Procurement is the process of acquiring the goods and services an organization needs for its operations.
What is sourcing?
Sourcing is the process of vetting, selecting, and managing suppliers who can provide the inputs an organization needs for day-to-day running. Sourcing is tasked with carrying out research, creating and executing strategy, defining quality and quantity metrics, and choosing suppliers that meet these criteria. By doing so, sourcing maintains the organization’s supply chain and guarantees that the organization always has access to the tools it needs to deliver on its objectives.
As the name implies, sourcing is concerned with creating sources through which the supplies an organization needs can flow through, while procurement is primarily concerned procuring these supplies that’ll be used for the organization’s day-to-day running.
Key differences between sourcing and procurement
Procurement and sourcing hold many similarities, but to understand each one, we need to look into what makes them different. Here are the key differences between sourcing and procurement.
Sourcing creates supply channels that procurement uses to acquire supplies for an organization’s operations.
Procurement involves procuring goods, inputs, and materials and organization needs for their operations, while sourcing comprises the entire body of effort that’s necessary to building and maintaining vendor relations, vetting suppliers, creating and maintaining a supply chain of vendors who’re ideal to the organization’s needs.
Procurement focuses on the what of supplies, while sourcing takes more aim at the who that makes supplies possible.
Procurement is concerned with ensuring a smooth flow of inputs, supplies, etc., while sourcing guarantees the supply chain that makes it possible.
Sourcing makes procurement easier, by building supply systems and relationships that are designed to aid the procurement process. Sourcing is an enabler to procurement.
Sourcing is concerned with building and managing supply chains, while procurement focuses on leveraging supply chains to ensure a steady flow of inputs and supplies to an organization.
Assuming an organization that possesses both a sourcing division and a procurement division as well, the sourcing team will typically be responsible for creating supplier relations and managing them to ensure they keep performing above average.
The sourcing team vets suppliers and negotiates contracts with them for the supplies the organization needs.
Here’s another key function of sourcing. The sourcing team uses data generated by the procurement team to manage supplier relationships and determine whether to continue or terminate vendor relationships, judging by how suppliers perform over time. Sourcing leverages tools such as:
- request for quotes for new products,
- acquiring vendor information,
- uploading vendor information into vendor management system,
- defining lead time,
- negotiations & agreements on pricing,
- supplier risk analysis,
- determining minimum order quantities, standard packing quantity, quality metrics, etc.
Procurement then takes off from the foundation the sourcing team has built on to receive requisitions from within the organization, order goods, track their delivery, measure, confirm, and record quality and quantity metrics, etc.
Sourcing builds the vendor-customer relationship, and procurement runs it, while sourcing oversees it all.
Sourcing builds supply chain resilience while procurement leverages these supply chains to do its job better.
Not only does sourcing build supply pipelines through which inputs flow to a business, but also, sourcing creates a stable, resilient, and dependable supply chain and helps build resilience for the organization in question.
Let’s assume an organization’s sourcing department has created a vendor relationship with a supplier, set them up, and handed over to procurement. All is set, right?
In many cases, an organization’s suppliers may face crises, product shortages, or emergencies that may hinder them from meeting supply obligations. All things being equal, this will hurt the procuring organization and there’s little procurement will be able to do in the short-term. Here’s another place where sourcing comes in again.
Sourcing, in this situation, is tasked with not just getting suppliers, but also with building a resilient supply chain, by creating vendor relations with several suppliers who can fill the gap whenever the need arises. Sourcing manages supply chains and builds alternatives for resilience, while procurement is primarily concerned with running already created supply chains.
How can a comprehensive procurement software help with procurement and sourcing functions?
It’s hard to ignore that sourcing and procurement need to work hand in hand to achieve their aims.
For example, while it’s the sourcing department’s job to negotiate contracts with suppliers, including pricing and minimum order quantities, it’s the procurement department that’ll eventually use that information to know how much to budget whenever a certain quantity of supplies is required. Now, how is the procurement department ever going to do its job well when they don’t have real-time access to this information?
On the other hand, how will the sourcing department know which suppliers and contracts to renew when there’s no record of supplier performance or any supplier risk metrics? It’s simply impossible for your organization to do its work well when there’s no agreement between sourcing and procurement. Simply put, sourcing can’t work without procurement, and procurement will be incapacitated without data from the sourcing department.
A comprehensive procurement software takes the pain out of both the procurement and sourcing processes. A comprehensive procurement software combines both the procurement and sourcing systems in one that offers:
- a single source of truth for sourcing and procurement to work with,
- digital systems and processes that minimize human error,
- an easy way to hand off vendors to procurement, and back to sourcing for reviews, etc.
What features should a comprehensive procurement system possess?
In order to function effectively, a comprehensive procurement system must possess features that enable it to meet both procurement and sourcing needs. Some of these key features include:
- purchase contracts,
- purchase requisition,
- purchase ordering,
- cloud storage for receipts, and documents,
- requests for quotes,
- budgeting capabilities,
- vendor performance ratings, and
- an extensive vendor management system, to mention but a few.
Leveraging such a comprehensive and well-grounded procurement software will:
- help your sourcing and procurement teams work on one page,
- reduce cycle times because decisions get made faster,
- offer greater visibility into your data, and
- offer insights into opportunities for cost savings.
Kissflow Procurement Cloud meets all those criteria and more. We built Kissflow Procurement Cloud the ground up for businesses looking to organize their sourcing and procurement in one place where it’s all easy to:
- manage all procurement and sourcing in one place,
- collaborate digitally,
- store all your data on the cloud, where it’s 100-percent safe and easy-to-access,
- onboard, manage, and off-board vendors with ease, and so much more, all in an easy-to-use interface.
Looking for a comprehensive procurement and sourcing tool that’s simple to adopt, easy to use, and powerful enough to beat your spreadsheets and forms? Take Kissflow Procurement Cloud for a spin here