Sourcing and Procurement Overview
Companies need supplies for operations from time to time. It is important from the standpoint of business. The availability of resources is the precondition for the conclusion of tasks at an anticipated pace.
For acquiring supplies, though, companies usually follow a streamlined process. First, they draw up a plan based on the due consideration of all factors. Thereafter, they proceed with the steps for its implementation.
Sourcing and procurement play a key role in the whole process of acquiring supplies from suppliers. Both processes work in tandem for the benefit of business organizations to streamline the acquisition of supplies. Despite some similarities between them, they are two distinct concepts. Read on to know what they are all about and their differences.
What is Sourcing?
Sourcing is a key process in the supply chain management of a business organization. It deals with the vetting, selection, and management of suppliers. As a research-based process, it aims to identify the right kind of suppliers who can meet a company’s demand for supplies.
Apart from attaining targeted goals, a business organization may also have other objectives. To achieve them, a company needs the supply of essential items in time. By maintaining the flow of supplies, sourcing assists a company in fulfilling its objectives.
As far as the nature of supplies is concerned, it may vary from one company to the other based on its business offerings and operations. Regardless of how this factor varies, sourcing helps a business organization find a source for the timely supply of essential tools. This way, sourcing paves the way for the procurement of items.
Following the identification of the right source to meet the demands for resources, the rest becomes simple and easy. This apart, sourcing also helps business organizations build a healthy relationship with several vendors. This kind of collaboration enables a company to diversify its relationship with the latter.
This collaboration gives a company a better chance to acquire supplies in the hour of need when its frontline suppliers face an issue with the delivery of items.
What is Procurement?
Procurement refers to the comprehensive process by which a business firm places an order for supplies and gets its delivery. It includes all aspects, ranging from the formulation of a plan for the purchase of an item to its implementation. Plus, it also covers the aspect of the storage of an item after its delivery.
Suppliers play an important role in procurement by ensuring the delivery of items to their client organizations within a specified deadline. Client companies make the payment for goods only after receiving them from suppliers. The involvement of two parties plus the negotiations and dealings between them from the beginning until the end for a solution makes procurement an end-to-end process.
In many ways, the definition of the term seems similar to that of sourcing. But the fact remains that they are two distinct terms that differ from one another.
Sourcing vs. Procurement: Differences
In a general sense, both terms sound similar. However, despite their similarities, the fact remains that they are two distinct concepts. It becomes evident when you consider their details.
Here are some characteristics that clearly show how the concepts differ from one another.
For a business organization, sourcing translates into ensuring the flow of the supply of essential tools to execute its tasks. It includes activities such as contacting vendors, vetting them, and signing up a contract with them. All these activities are aimed at meeting the needs of an organization.
Unlike sourcing that revolves around the processes for readying the acquisition of supplies, procurement is the process of acquisition. That is to say, procurement is the act of obtaining the essential items or tools for a business organization for the fulfillment of its objectives.
2. Central Factor
Sourcing revolves around vendors or suppliers. It concerns itself with the entities that supply the requisite goods for a company. In the case of procurement, the focus is on goods that need to be delivered to an organization.
3. Building Vs. Leveraging Supply Chain
The importance of supply chain management stems from the need to maintain the flow of goods. Sourcing helps in the creation of a supply chain by building a company’s collaboration with different vendors.
Being in a working relationship with different vendors allows a company to explore multiple avenues in the hour of need. Sometimes reliable vendors fail to deliver ordered items due to an issue. In such situations, tie-ups with other vendors prove to be useful. With such tie-ups, a company can order the products it needs from another vendor.
Procurement is all about utilizing the supply chain created by sourcing to get the essential items for the operational needs of a company. The core aspect of the concept is the continuation of the supply of tools for a company without any roadblock.
4. Management Vs. Running Supply Chain
Sourcing not only creates supply chains but also presents alternatives to a company to be resilient. Relying on one supplier can be risky for a company as they may face different issues from time to time. Sometimes a supplier can run into a problem due to which they may not be able to deliver orders within a specified deadline.
Sourcing provides a solution to a company for such situations. Through vetting, it provides a long list of suppliers who can provide supplies to a business organization without compromising quality.
Procurement, on the other hand, is concerned with running a supply chain that is already created by a business organization through sourcing. It helps a supply chain continue its supply of products.
Procurement & Sourcing Must Work Hand in Hand to Benefit a Business Organization
Most business organizations have a proper arrangement in place for both sourcing and procurement. For streamlining both these processes, companies usually create a separate department for each concept. Staff members who work under the sourcing department negotiate contracts for the delivery of supplies.
Once the terms for signing a contract are established, and it is signed through sourcing, the details go to the procurement department. This enables the representatives of the procurement department to know the price and other details of supplies. They can proceed accordingly to get the supplies.
The sourcing department also needs to get the details of suppliers’ performance to decide whether to renew a contract with an existing supplier or look for a new one.
Thus, the sourcing and procurement departments of a business firm must work hand in hand in planning the purchase of items and the successful implementation of the plan. Any change or roadblock in this arrangement affects the delicate relationship between both departments.
A lack of synchronization between both departments may result in the low productivity and revenue generation of a business organization.
Market dynamics keep changing from time to time. Therefore, the manual method may not be adequate for the timely exchange of information between both departments. A comprehensive solution can help address challenges in this regard.
How a Comprehensive Procurement Software can Help Strike the Balance between the Two Departments
The rationale behind using a software program for a task is to simplify it. In line with this approach, using comprehensive procurement software makes it easy for a b business organization to maintain the right balance between its sourcing and procurement departments by offering some advanced features.
The top features of comprehensive procurement software include the following:
- Procurement and sourcing through a single source
- Automatic digital processes and systems to reduce human involvement and error
- Easy search for vendors for procurement
- Sourcing through reviews
These features of procurement software are useful for both sourcing and procurement. While procurement software is expected to have the aforementioned features, you might want some additional features, including the following:
- Contracts, requisition, and ordering of the purchase of products
- Ability to store documents and receipts on the cloud
- Ability to make a budget and send inquiries to suppliers
- Measure the performance of vendors
Benefits of Employing a Comprehensive Procurement Software Program
In today’s day and age, employing a comprehensive procurement software program brings several benefits to the table. Speaking of such benefits, the prominent ones among them include the following:
- Synchronization between the teams working at sourcing and procurement departments
- Ease of making quick business decisions
- Data analytics and cost savings
A business organization should consider using a simple yet powerful tool as a comprehensive procurement software program. On the one hand, such a solution would reduce complexities. It would boost productivity, on the other.
Both supply and procurement are the key components of supply chain management. Both these aspects are important for the overall performance of an organization as they help maintain the supply for its operations. Managing both aspects manually can be clumsy and time-consuming.
A reliable procurement software program can help maintain the right balance between sourcing and procurement. Investing in such software may cost a fee, but it gives good value for money, so it is worthy of investment.