Important differences between Sourcing and Procurement

Sourcing

Sourcing is the process of identifying, evaluating and selecting suppliers or vendors to provide goods and services that a company needs to operate or produce its products. It involves researching potential suppliers, evaluating their qualifications, and negotiating contracts for the acquisition of goods and services. Sourcing is a key aspect of supply chain management and can have a significant impact on a company’s costs, quality, and competitiveness. The goal of sourcing is to identify the best possible suppliers that align with the company’s objectives, such as cost-efficiency, quality, delivery and sustainability.

Example of Sourcing

One example of sourcing would be a clothing manufacturer identifying and selecting suppliers for the fabrics and materials they need to produce their garments. The manufacturer may conduct research to identify potential suppliers, then visit their facilities and evaluate their quality, reliability, and cost. Once the manufacturer has selected a few potential suppliers, they may negotiate contracts for the purchase of the materials, such as specifying the quantity and quality of materials to be supplied, the delivery schedule, and the price. Once the contracts are signed, the manufacturer may continue to manage their relationship with the suppliers, ensuring that they are meeting the terms of the contract and addressing any issues that arise.

Process of sourcing

The sourcing process typically involves several steps, including:

1. Needs analysis: The first step in the sourcing process is to identify the specific goods or services that the company needs. This may involve evaluating the company’s overall spend, identifying areas where savings can be made, and determining which products or services are mission-critical.
2. Supplier research: Once the company has identified its needs, it will begin researching potential suppliers. This may involve searching online marketplaces, attending trade shows, and networking with other industry professionals.
3. Supplier evaluation: After identifying potential suppliers, the company will evaluate them based on factors such as quality, reliability, cost, and sustainability. This may involve visiting suppliers’ facilities, reviewing their certifications and accreditations, and obtaining references from other companies.
4. Negotiations: Once the company has identified the best supplier(s) for its needs, it will begin negotiating contracts. This can involve specifying the quantity and quality of goods or services to be supplied, the delivery schedule, and the price.
5. Contract execution: After the contracts are signed, the company will manage the execution of the contract and ensure that the supplier is meeting its obligations. This may involve monitoring supplier performance, tracking inventory, and addressing any issues that may arise.
6. Continual supplier evaluation: The company will periodically review the supplier performance and evaluate the supplier’s ability to meet the company’s needs, and the supplier’s performance in meeting the company’s requirements, such as quality, delivery, and cost.

It’s important to note that the sourcing process may vary depending on the company’s needs and objectives, and may include additional steps or activities. Also, the sourcing process may be more complex when it comes to global sourcing, as it involves more challenges such as cultural and language barriers, legal and regulatory challenges, and logistics challenges.

Types of sourcing

There are several types of sourcing that companies can use to acquire goods and services. Some of the most common types include:

1. Direct sourcing: This type of sourcing involves purchasing goods or services directly from the manufacturer or supplier. This can provide a company with more control over the quality and cost of the goods or services they are purchasing.
2. Indirect sourcing: Indirect sourcing is the process of acquiring goods or services that are not directly related to the company’s core business. This includes items such as office supplies, IT equipment, or marketing services.
3. Strategic sourcing: This type of sourcing involves analyzing a company’s overall spend to identify areas where savings can be made through better sourcing practices. This may include consolidating suppliers, standardizing products, or negotiating better prices.
4. E-sourcing: This refers to the use of technology to automate and streamline the sourcing process. This can include online marketplaces, electronic auctions, and reverse auctions, as well as digital tools for managing contracts and supplier performance.
5. Global Sourcing: This approach involves looking beyond domestic suppliers to find the best quality, price, and delivery for goods and services from suppliers located anywhere in the world.
6. Sustainable Sourcing: This approach focuses on identifying and selecting suppliers who have sustainable and socially responsible practices and policies.
7. Just-in-time sourcing: This is a sourcing strategy that aims to minimize inventory and maximize efficiency by ordering goods and services just in time to meet production and consumption needs.
8. Reverse Sourcing: This is a sourcing strategy in which the company sells its excess inventory or goods to other companies rather than disposing of them.

These are just a few examples, depending on the company’s needs and objectives, the combination of sourcing types can vary. Also, some companies may have different names for similar types of sourcing, depending on the internal process or terminology.

Sourcing techniques

There are several techniques and strategies that companies can use in their sourcing process. Some of these include:

1. Strategic sourcing: This approach involves analyzing a company’s overall spend to identify areas where savings can be made through better sourcing practices. This can involve standardizing products, consolidating suppliers, and negotiating better prices.
2. Supplier Relationship Management: This is the process of managing interactions with suppliers to gain the best possible outcome for the company. This includes communication, negotiation and monitoring of supplier performance.
3. E-sourcing: This refers to the use of technology to automate and streamline the sourcing process. This can include online marketplaces, electronic auctions, and reverse auctions, as well as digital tools for managing contracts and supplier performance.
4. Global Sourcing: This approach involves looking beyond domestic suppliers to find the best quality, price and delivery for goods and services from suppliers located anywhere in the world.
5. Sustainable Sourcing: This approach focuses on identifying and selecting suppliers who have sustainable and socially responsible practices and policies.
6. Just in time sourcing: This is a sourcing strategy that aims to minimize inventory and maximise efficiency by ordering goods and services just in time to meet production and consumption needs.

These are just a few of the many different techniques and strategies that companies can use in their sourcing process, the choice of technique is dependent on the company’s needs and objectives.

Procurement

Procurement refers to the overall process of acquiring goods and services that a company needs to operate or produce its products. It encompasses a wide range of activities and responsibilities, including planning, sourcing, purchasing, and managing the delivery of goods and services. Procurement also includes the management of contracts and the evaluation of supplier performance.

Procurement professionals are responsible for managing the entire procurement process, from identifying a need for goods or services to delivering them to the company. This can include:

• Developing and implementing procurement policies and procedures
• Identifying and qualifying potential suppliers
• Negotiating contracts and prices
• Managing the purchase order process and ensuring timely delivery
• Managing supplier relationships and performance
• Managing and tracking inventory
• Managing and resolving any issues that may arise during the procurement process

Procurement is an important function within a company as it helps to ensure that goods and services are obtained at the best possible price, quality and delivery while minimizing the risk and maximizing the value.

Process of Procurement

The procurement process typically involves several steps, including:

1. Needs analysis: The first step in the procurement process is to identify the specific goods or services that the company needs. This may involve evaluating the company’s overall spend, identifying areas where savings can be made, and determining which products or services are mission-critical.
2. Requirement definition: Once the company has identified its needs, it will define the specific requirements for the goods or services it needs to acquire. This may include specifications for quality, quantity, and delivery date.
3. Supplier research: After defining the specific requirements, the company will begin researching potential suppliers. This may involve searching online marketplaces, attending trade shows, and networking with other industry professionals.
4. Supplier evaluation: After identifying potential suppliers, the company will evaluate them based on factors such as quality, reliability, cost, and sustainability. This may involve visiting suppliers’ facilities, reviewing their certifications and accreditations, and obtaining references from other companies.
5. Solicitation: After identifying the best supplier(s) for its needs, the company will solicit offers from the suppliers. This may involve issuing a request for proposal (RFP) or request for quotation (RFQ) to suppliers
6. Supplier selection: The company will evaluate the received offers from the suppliers, and will select the supplier who can best meet the company’s requirements.
7. Contract negotiation: Once the supplier is selected, the company will negotiate the contract with the supplier. This can involve specifying the quantity and quality of goods or services to be supplied, the delivery schedule, and the price.
8. Contract execution: After the contracts are signed, the company will manage the execution of the contract and ensure that the supplier is meeting its obligations. This may involve monitoring supplier performance, tracking inventory, and addressing any issues that may arise.
9. Continual supplier evaluation: The company will periodically review the supplier performance and evaluate the supplier’s ability to meet the company’s needs and the supplier’s performance in meeting the company’s requirements, such as quality, delivery, and cost.

It’s important to note that the procurement process may vary depending on the company’s needs and objectives, and may include additional steps or activities. Also, the procurement process may be more complex when it comes to global procurement, as it involves more challenges such as cultural and language barriers, legal and regulatory challenges, and logistics challenges.

Stages of Procurement:

The procurement process typically involves several stages, including:

1. Planning: In this stage, the company identifies its needs and defines the specific requirements for the goods or services it needs to acquire. This may involve evaluating the company’s overall spend, identifying areas where savings can be made, and determining which products or services are mission-critical.
2. Sourcing: In this stage, the company researches potential suppliers and evaluates them based on factors such as quality, reliability, cost, and sustainability. This may involve visiting suppliers’ facilities, reviewing their certifications and accreditations, and obtaining references from other companies.
3. Solicitation: After identifying the best supplier(s) for its needs, the company will solicit offers from the suppliers. This may involve issuing a request for proposal (RFP) or request for quotation (RFQ) to suppliers
4. Selection: The company will evaluate the received offers from the suppliers, and will select the supplier who can best meet the company’s requirements.
5. Contracting: Once the supplier is selected, the company will negotiate the contract with the supplier. This can involve specifying the quantity and quality of goods or services to be supplied, the delivery schedule, and the price.
6. Order management and delivery: After the contracts are signed, the company will manage the execution of the contract and ensure that the supplier is meeting its obligations. This may involve monitoring supplier performance, tracking inventory, and addressing any issues that may arise.
7. Invoice processing and payment: The company will process the invoices from the supplier and make the payments according to the agreed terms.
8. Performance management: The company will periodically review the supplier performance and evaluate the supplier’s ability to meet the company’s needs and the supplier’s performance in meeting the company’s requirements, such as quality, delivery, and cost.

It’s important to note that the procurement process may vary depending on the company’s needs and objectives, and may include additional stages or activities. Also, the procurement process may be more complex when it comes to global procurement, as it involves more challenges such as cultural and language barriers, legal and regulatory challenges, and logistics challenges.