It is easy to mistake procurement as a synonym for sourcing, since they think both mean getting supplies for your company. While both are an integral part of supply chain management, there is a significant distinction between procurement and sourcing.
However, both of them have different meanings, and you need to have a clear understanding of procurement and sourcing. In this article, we will define sourcing and procurement, their difference, and why it is essential to differentiate between them.
What is Procurement?
Procurement refers to the process of gathering all the things you need for your goods and services. The entire entails placing an order for the required goods with a supplier, receiving them, and then paying the suppliers.
This end-to-end process includes:
- Requesting quotations for new items
- Following up with suppliers for the delivery
- Getting order confirmation
- Making the purchases
- Managing inventory
- Negotiating prices
- Paying for the purchases
- Planning purchases
Procurement starts the supply chain since it will help you find the raw materials necessary for producing goods. An optimal procurement system helps your manufacturing process run smoothly and complies with all the procedures.
Businesses spend a lot of time formulating a procurement strategy to ensure they can access the raw materials necessary to manufacture products. If a business is unable to get raw materials, then production will come to a halt. Therefore, it makes for an integral part of your business’s supply chain.
What is a Global Sourcing?
Global Sourcing is the process that comes before purchasing materials and therefore is considered a subsection of the procurement department. It entails finding the suppliers that can offer you affordable and quality materials before you buy them.
You need to first find and assess different suppliers to choose the best ones. The ideal global sourcing strategy should emphasize:
Sourcing the best suppliers
Bargaining prices and getting favorable payment conditions
Maintaining good relationships with suppliers/providers
If you nail the sourcing part, it can make the procurement process straightforward. The entire global sourcing process is about finding the best quality materials at a reasonable rate. The cheaper you source the materials, the higher the business’s profit margins would be in the long run.
While cost saving is the primary business objective, the main aim of sourcing is to strike the right balance between quality and price. You have to find a standard quality of materials at the best price for your business.
The sourcing department usually has the following few responsibilities:
Requesting quotations for new items
Getting vendor details
Putting vendor information into your company’s database
Assessing the lead time
This process is usually done once for every vendor, except for revising materials costs. But, since companies can’t rely on a single supplier, they would need to continuously source from different vendors.
Difference between Procurement and Global Sourcing
While there is a significant difference between procurement and sourcing, some managers and small companies tend to mix them up. Since it is easy to mistake procurement and sourcing, here are five points to give you a better idea about it.
It focuses on the “who” is making/providing the supplies
The sourcing process helps streamline the procurement of materials
Identifying the best vendor that offers you a standard quality of materials at a right pricing
Sourcing is a critical part of the entire procurement process
It focuses on the “what” of supplies
Ensures that the supply of raw materials is smooth so there is no disruption in the production
It is an act of purchasing the supplies/materials your business needs
Comprises of various systems that operate in harmony for buying materials/supplies
In a nutshell, sourcing is all about finding suppliers for the materials/supplies for the company, whereas procurement is about obtaining those supplies to fulfill company requirements.
Sourcing is part of procurement that helps find, vet, and maintain relationships with different suppliers. The procurement department will acquire the supplies needed from these vendors to build supply chain resilience.
A vital thing to remember is that procurement can happen without sourcing. For instance, a company with a higher budget can direct the procurement manager to buy 20 laptops from the nearest store since it is close to their location. The manager can move on with a procurement process and buy those laptops.
Significance of Knowing the Difference between Global Sourcing and Procurement
Most managers think that procurement and sourcing are the same and cannot incorporate the sourcing part into the procurement process. Understanding their difference will make the procurement process easy and allows you to save time and money.
Since more and more companies are now incorporating automated procurement systems, managers who don’t know the difference between these two terms won’t be able to utilize them in the best possible way.
Moreover, learning about the difference between procurement and sourcing will help you find the vendors and allow you to negotiate with them for the best rate.
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