Procurement vs Sourcing

In the world of supply chain management, there tends to be a little confusion where terms like procurement and sourcing are concerned. The terms are related and sometimes used interchangeably, but they each refer to very distinct functions critical to an organization's operations. Let’s explore the difference between procurement and sourcing.

Procurement vs Sourcing: What is Procurement?

The Art of Acquiring

Procurement, at its core, is the process of acquiring goods and services for an organization. It's the strategic function responsible for selecting suppliers, negotiating contracts, and managing the purchasing process from start to finish.

Think of procurement as the broader umbrella encompassing various stages—from identifying needs to executing the purchase. It involves planning, budgeting, vendor selection, purchase order creation, receipt of goods or services, and ultimately, payment processing.

Procurement vs Sourcing: What is Sourcing?

The Search for Optimal Suppliers

Sourcing, on the other hand, is a specific aspect within the procurement spectrum. It's the art of finding, evaluating, and selecting suppliers or vendors to fulfill specific requirements or needs.

Sourcing focuses on identifying potential suppliers, evaluating their capabilities, negotiating contracts, and ensuring the best possible terms and conditions for the goods or services required. It’s about building relationships, vetting options, and selecting the most suitable suppliers to meet the organization’s needs.

Procurement vs Sourcing: 4 Key Differences

To explain further, here are four key differences between procurement and sourcing:

1. Scope

  • Procurement: The scope of procurement extends beyond sourcing to include the entire end-to-end process of acquiring goods and services. Procurement encompasses all the activities before, during, and after purchasing.
  • Sourcing: Sourcing specifically deals with the selection and management of suppliers.

2. Focus

  • Procurement: Procurement focuses on the overall acquisition process and its alignment with organizational goals. The primary objective of procurement is to ensure that the organization obtains the right goods and services at the right cost, from the right suppliers, and at the right time.
  • Sourcing: Sourcing focuses specifically on identifying and managing suppliers to meet specific requirements. Sourcing aims to create and maintain strong relationships with suppliers.

3. Activities

  • Procurement: Procurement includes activities such as strategic planning, contract negotiation, order placement, and contract management.
  • Sourcing: Sourcing is a specific activity within procurement, focused on supplier identification, evaluation, and selection. Sourcing supports procurement by establishing supply chains for procurement teams to utilize

4. Timeframe

  • Procurement: Procurement is a long-term and ongoing process that involves strategic planning for the organization's overall needs. It considers the entire lifecycle of the required goods or services.
  • Sourcing: Sourcing is more focused on the initial stages of the procurement process. In some organizations, sourcing is an ongoing process; in most, sourcing is typically a more short-term, project-oriented activity focused on finding and selecting suppliers for specific goods or services.

Comparison Chart

For a summary of the differences between procurement and sourcing, refer to the following comparison chart:

ProcurementSourcing
An end-to-end process encompassing all the activities before, during, and after purchasingPart of the procurement process; takes place before a purchase is made or when an issue arises during the procurement process
Focuses on what supplies are neededFocuses on who makes supplies possible
Procures goods and services for the organizationFinds, vets, and contracts suppliers
Leverages supply chains to ensure supply as neededBuilds and manages supply chains
Utilizes vendor relations to acquire goodsFocuses on developing vendor relationships
Primarily concerned with leveraging established supply chainsBuilds alternatives for resilience

Synergy Between the Two

Procurement and sourcing are interdependent, with each playing a crucial role in optimizing the supply chain. Sourcing informs procurement decisions by identifying the best suppliers, while procurement implements sourcing strategies to execute successful acquisitions. A robust sourcing strategy feeds into an efficient procurement process, ensuring that the goods and services acquired align with the organization’s objectives while optimizing cost, quality, and supplier relationships.

Engaged in Complex Procurement?

Current SCM is the first of its kind - supply chain management software purpose-built to support the most complex procurement & materials management projects. With Materials Management and Vendor Document Requirements uniquely integrated into the Order, Current SCM provides a unified, collaborative platform to streamline the end-to-end process of project-driven procurement & materials management.

If you engage in any of Direct Procurement, Technical Procurement, Project Procurement or Third Party Procurement, Current SCM will improve your procurement & materials management workflow. If you engage in all four, Current SCM will revolutionize the way you do business.

Contact the team at Current SCM today to learn more!

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