Sourcing and Procurement: Why the Differences Are Insignificant

People use sourcing and procurement interchangeably. Although inaccurate, they are similar in many ways.

Procurement and sourcing are related in larger companies, split into departments. In smaller organisations without specific divisions, stakeholders often combine S&P. Sources are part of procurement.

While acquiring and procurement are often confused, both are vital to reducing purchase costs and risks. Both maximise ROI for enterprises.

Instead than focusing on how the two activities vary, learn how they can be used together to maximise their benefits.

This page compares procurement and sourcing by:

• Define procurement, sourcing, and buying
• Comparing sourcing and procurement
• Explaining these processes’ basic value
• Showing how technology improves sourcing and procurement

What distinguishes sourcing from procurement?

Procurement, sourcing, and purchase confuse stakeholders. These three names refer to different steps in the process, however they are related.

Procurement

A company’s procurement processes include finding, buying, and paying for goods and services. It covers the buying process from needs assessment to supplier selection, negotiation, purchase, three-way matching, payment, vendor management, and reporting.

Source

The procurement process includes acquisition. After needs assessment and before procurement, it begins. It involves choosing vendors to satisfy company needs while buying goods or services. acquiring entails reviewing a list of vendors, doing due diligence on each, and choosing the best one for your organisation based on criteria.

Buying

After acquiring, procurement involves purchasing. It involves ordering, receiving, and paying for products and services. Purchasing and sourcing are the key acquisition steps.

Does sourcing vs. procurement matter?

The acquiring process aims to improve risk management, cash leaks, and the purchasing process so firms may maximise ROI on procurement.

The combined potential of S&P outweighs their logistical differences. Both strategic.

Sourcers discover and vet merchants, unlike buyers, who buy and pay for items tactically. It strategically reduces company risk by:

• Setting search criteria and sourcing policies
• Shortlisting and screening suppliers
• Creating RFP/RFQ documents
• Implementing diversity and sustainability standards
• Risk matrix and security questionnaires
• Improve supply chain resilience and management

Procurement includes: finding and buying items

• Requesting and approving purchase orders
• Creating procurement and budget policies
• Technology for procurement processing
• Analysing and reporting spending
• Making procurement project plans
• Pricing and contract negotiations
• Analysing supplier performance

Thus, S&P teams should collaborate even if they work in different departments. After all, acquiring goal of decreasing costs and risk affects procurement’s goal of maximising ROI and vice versa.

Using sourcing best practices to boost procurement

Effective sourcing requires a competent acquisition operation. Before sourcing, you need a buyer or organisation needs analysis. Thus, you avoid resource duplication and low-return investments.

After sourcing, your organisation needs excellent purchasing and contract administration to get the things it ordered on time and without faults.

Conversely, strategic sourcing is essential for successful procurement. Acquiring underpins procurement. It helps firms find cost-saving and risk-reducing opportunities.

How sourcing boosts procurement and ROI

Strong acquiring processes help companies achieve their goals and get better results. These results improve when organisations source sustainably.

Sustainable sourcing will be essential for acquisition teams in the future. The fashion industry already considers this discipline a “must-have,” according to McKinsey, as consumers increasingly support socially and environmentally conscious firms.

According to McKinsey’s Apparel CPO Survey 2019, 56% of CPOs believe “Responsible and sustainable procurement is a top 10 CEO priority, demonstrating its strategic importance.”

Ethical and sustainable acquire is quite simple. In Harvard Business Review, Smeal College of Business professors Verónica H. Villena and Dennis A. Gioia advised sourcing teams to examine first-tier and downstream suppliers’ business practices. These best practices improve sourcing effectiveness.