While sourcing and procurement are both key elements of your business, they can be easy to mix up at first glance. These two terms are often used interchangeably. However, the reality is that each process plays a different role in your organization. In this post, we’ll be highlighting the differences between sourcing vs. procurement.
Sourcing vs. Procurement
Sourcing is the process of vetting and acquiring suppliers to provide the goods you need to complete your business services. Strategic sourcing specifically is important to building a solid supply chain and forming partnerships with reliable, efficient, and cost-effective providers. This process involves multiple steps:
1. Defining your strategy and quality and quantity benchmarks.
2. Requesting quotes from and researching multiple suppliers.
3. Narrowing down providers that meet your needs.
4. Calculating risk.
5. Negotiating payment terms.
6. Maintaining the relationship.
When sourcing, you must balance quality and cost. While cheaper materials mean more profit for your business, you must meet your customer’s expectations as well. Low-quality materials naturally result in a low-quality product that doesn’t work as well as it should or last long.
Ultimately, a more expensive provider could be more cost-effective for you in the long run if their service is excellent. High-quality suppliers usually have high standards for accuracy and quality. They might also be able to more easily fulfill larger volumes of orders.
Another important piece of the supply chain is finding backup suppliers, especially if you have high-risk providers in your supply chain. If COVID-19 has taught us anything, it’s that situations can quickly change. Being able to adapt will lend your business the resilience it needs to survive.
When understanding the differences between sourcing vs. procurement, remember that sourcing is just one step in procurement. Procurement is the process of obtaining the goods you need for your operations. Your procurement experts make sure that your business is receiving a consistent, regular flow of goods.
Since sourcing is the first piece in the process, it mainly focuses on building the supply chain. On the other hand, procurement is mostly preoccupied with helping to run and manage the supply chain instead.
In other words, strategic sourcing forms the building blocks of procurement. But procurement encompasses the entire purchase order process—from ordering goods to tracking deliveries to ensuring order accuracy.
Sourcing and Procurement Work Hand in Hand
Both processes depend entirely on one another. Your sourcing department needs to help create a resilient supply chain that adapts quickly and churns out high-quality products. In turn, your procurement department needs to provide performance metrics for each supplier. This will give your sourcing department direction on which suppliers to renew contracts with.
To source and procure goods efficiently takes immense time and effort. Your business teams might struggle to complete these functions while also performing their day-to-day jobs. This can make it difficult to scale and increase profits.
That’s why plenty of businesses are choosing to outsource these departments to strategic sourcing and procurement experts such as Teknik. We’ve worked with organizations like Goodyear and Ford to help streamline purchasing processes and save money. To take the next step, call us at (305) 592-1512.