The Importance of Sourcing in the Procurement Cycle

Many people use the phrases ‘sourcing’ and ‘procurement’ interchangeably, but procurement professionals know they are separate procedures.

‘Sourcing’ is a single, critical aspect of the procurement cycle that dictates how and where your teams get the goods and services they need to expand business. Procurement is much more.

A distinct sourcing workstream for your procurement workflow? Read this.

We’ll define ‘sourcing’ and ‘procurement’ and how they vary and operate together to optimise your company’s purchasing procedures.

Definition: Procurement

Procurement includes choosing and buying the items and services your organisation requires. Planning, budgeting, ordering, receiving, paying, and managing suppliers. Source and buy are the main steps of procurement.

You’ll identify, evaluate, and choose the finest vendors. Before buying, you must analyse the industry, develop your sourcing strategy, request bids, negotiate contracts, and integrate providers.

Purchasing involves ordering, paying, and receiving products and services from providers. The goal is to handle payments on time and deliver goods and services as specified to satisfy workers.

Definition: Sourcing

The finest providers for your needs are found via sourcing. Strategically reducing costs, improving quality, and increasing procurement efficiency is its goal. You can source in numerous methods based on your needs.

‘General Sourcing’ means identifying suppliers that fulfil your fundamental criteria, such as price, quality, and delivery time. This works for low-value or low-risk purchases that don’t require any customisation or creativity—just buy it!

Strategic sourcing involves selecting suppliers that can provide value via personalised innovation, cooperation, or sustainability. This is for high-value or high-risk purchases that may require customisation or white-glove handling.

You must realise that procurement involves sourcing and purchasing.

Key Differences: Sourcing vs. Purchasing

‍The sourcing and purchasing processes have distinct objectives, timelines, components, and roles. This useful table compares sourcing and purchasing’s main differences:

Understanding Sourcing

Several stages assist you identify the finest providers for your needs. Your sourcing approach may vary, but you’ll usually follow these steps:

Identify Need

You must know what to buy and why before acting.

Write out the scope, specifications, goals, budget, schedule, and stakeholders of your acquisition. You should also evaluate your supply chain and discover gaps and improvements.

Market Research

Step back and examine the market to identify vendors who can satisfy your demands. Learn about vendors’ skills, costs, quality, reputation, and availability. Then consider market trends, risks, and opportunities that may effect your purchase.

Setting your sourcing strategy

Then create your sourcing strategy to locate and choose the finest suppliers. Determine if you want broad or strategic sourcing and whether you want one or more providers.

Request bids via RFP/RFQ

Bidding time! Ask vendors who fit your approach for quotes.

Create and send out RFPs or RFQs describing your needs, requirements, and expectations, then relax and meditate before the bids arrive.

Review and Negotiate Bids

Review and assess supplier bids after receiving and compiling them. Compare offers based on your top needs and criteria and evaluate vendors by performance.

Negotiate with suppliers for lower rates, better terms, or more value-added services now to receive the best offer.

Choose and Integrate Suppliers

Time to choose and sign the best supplier(s) for your needs.

You should also add the provider to your system for future purchases. After onboarding, Zip develops renewal procedures and sends notifications before renewal dates so you never miss a purchase.

Establish KPIs and benchmark.

Finally, establish KPIs and benchmark supplier performance. KPIs like quality, delivery, pricing, and service should be used to evaluate the supplier.

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How to streamline sourcing and procurement

‍We’ve discussed how important the sourcing process is in the procurement cycle since it determines where your organisation should buy products and services.

Let’s enhance and streamline the process for better results. The keys to improving procurement flow are here.

Determine and prioritise needs

Prioritising what you need to buy and why allows you to prioritise the elements that impact your decision-making, which will help you make wiser choices. Align procurement needs with corporate goals and objectives to ensure feasibility.

Research suppliers thoroughly.

Gather as much information as possible to examine potential providers who can suit your demands and check their reputation and dependability.

Standardise scoring.

Avoid prejudice when comparing vendors using a consistent and open method. Ranking suppliers by performance should be objective and quantifiable.