Sourcing and Procurement
Sourcing vs procurement: Key differences and responsibilities
Manufacturing and e-commerce businesses heavily rely on a robust supply chain. In a global economy, the supply chain often connects suppliers from different geographical locations. While this keeps the supply chain open to innovations and agility, it also exposes it to global economic and political disruptions.
A supply chain that lacks new-age systems and processes may be exposed to a high risk of disruption without a backup plan. To counter the risk, businesses must take a strategic approach towards procurement and sourcing. However, what is the difference between the two?
This article covers the definitions of sourcing vs procurement and the key differences between the two. It will also cover the key features of a procurement management system.
What is procurement?
The procurement process comprises identifying and shortlisting the suppliers, followed by acquiring the raw materials to produce a finished product. Although the procurement process may vary depending on the nature of the business, it broadly includes the following steps –
- Identify the need for a product and create a purchase requisition.
- Evaluate the market and shortlist suppliers through a request for quote (RFQ) or request for proposal (RFP).
- Review the quotations and shortlist the vendors.
- Negotiate the best cost price and terms of service delivery.
- Issue purchase orders.
- Receive and audit the items to ensure quality compliance.
- Receive the invoice and perform a 3-way match between the purchase order, invoice, and goods receipt.
- Process the payment.
- Monitor the supplier performance and nurture the relationship.
Procurement comprises supplementary processes such as supplier management, data analysis, and contract management. It directly impacts a company’s bottom line.
What is sourcing?
Sourcing is a subset of procurement and comprises vetting, selecting, and managing suppliers. Strategic sourcing is the process of using models that minimise risk and purchase costs and increase their value.
Strategic sourcing helps you negotiate the best price and quality and directly impacts the profit margin. Sourcing specialists also ensure backup channels which can continue the supply in case the primary supplier is unable to fulfil the demand.
This step comprises activities such as demand analysis, market research, tendering, supplier evaluation and selection, contract negotiation, supplier onboarding, relationship management, and performance management.
Critical differences between sourcing and procurement
Procurement and sourcing are from the same vertical, yet different. The following table will help you understand the main differences –
Procurement | Sourcing |
Acquire high-quality goods to meet the company’s needs. |
Choose suitable suppliers and negotiate favourable price and service delivery terms. |
Includes sourcing, placing purchase orders, payments, and managing contracts. |
Define the need, research the market, do sourcing, vet suppliers, and negotiate contracts. |
Focuses on what the items are and how they are supplied. |
Focuses on who supplies the items. |
Aims to fulfil internal needs, ensure a steady flow of goods, and gain a competitive advantage by leveraging the supply chains. |
Aims to lower the cost and build and manage a robust supply chain. |
Manages the supplier relationships. |
Builds supplier relationships. |
Procurement is an end-to-end process that covers all the activities before, during, and after the purchase. |
Sourcing happens before the purchase, and sourcing managers may step in if the supplier is not able to fulfil the need. |
Procurement focuses on finding a cost-effective solution. It ensures quality, mitigates risk and improves supplier relations. |
Sourcing focuses on long-term cost savings, stability, and market competitiveness. It ensures that alternatives exist for greater resilience. |
Features of a comprehensive procurement system
Since sourcing is a subset of procurement, a comprehensive procurement system must cover its features. Key features of a procurement system include –
- Purchase contracts, requisitions, and orders.
- Cloud storage for documents and receipts.
- Quote requests.
- Budgeting feature.
- Performance rating for vendors.
- Vendor management system.
Such a procurement management system will help you reduce cycle time, make faster decisions, get greater visibility into the data, and offer cost-saving insights.
How can Infosys BPM help?
Infosys BPM helps you run sourcing and procurement processes smoothly and on schedule. With the right procurement management system, you can reduce costs, access a vast network of suppliers, make procurement agile and efficient, mitigate risks, and improve productivity.
Read more about the benefits of sourcing and procurement outsourcing.