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 do you mean by sourcing?

Sourcing is a specific segment under a procurement cycle that refers to identifying, evaluating, and selecting suppliers or vendors to obtain goods, services, or raw materials required for a business's operations. It is a critical step in the procurement cycle and significantly determines the quality, cost, and availability of the goods or services purchased. 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.

If you are looking for tips to build a great strategic sourcing plan for your business, here's a guide you should check out. It comes with ready-made templates.

What is procurement?

Procurement, on the other hand, encompasses the entire end-to-end process of acquiring goods, services, or works from external sources. It includes identifying needs, sourcing, negotiating, purchasing, receipt and inspection of goods, invoicing, payment, and supplier management.

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 vs procurement.

Adding to this, 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.

How can 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.

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.

Related Topics:

• Buyers Guide to Strategic Sourcing Software
• How to Choose the Right RFP Software for Your Business
• Complete Guide to Strategic Sourcing