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What is the Difference Between Sourcing and Procurement?

  • Rhiannon Garber
  • July 12, 2023

In the world of business and supply chain management, the terms sourcing and procurement are often used interchangeably. However, it is crucial to understand that these two terms represent distinct stages within the procurement process. Understanding the difference between sourcing and procurement can significantly benefit your company by enabling supply chain activities and increasing operational efficiencies.

Sourcing

Sourcing is the strategic function that involves identifying, evaluating, and selecting suppliers or vendors to fulfill your company’s specific requirements. Sourcing initiatives are driven by various factors, including quality, cost, reliability, sustainability, and other business considerations. The main objective of sourcing in your business is to establish those relationships with your suppliers so that they provide the required products and services that align with your company goals. This can look like conducting market research, negotiating contracts, assessing supplier capabilities, and establishing partnerships that are mutually beneficial.

Key Elements of Sourcing

Supplier Identification: Sourcing involves researching and identifying potential suppliers based on your businesses specific criteria for product quality, pricing, delivery capabilities, and reputation.

Supplier Evaluation: Once you identify potential suppliers, they will then be evaluated based on predefined parameters, including things like financial stability, production capacity, certifications, and compliance with industry standards.

Negotiation: Sourcing professionals to engage in negotiations with suppliers to secure favorable terms and conditions, including pricing, payment terms, delivery schedules, and service level agreements.

Procurement

Procurement encompasses the entire process of acquiring goods, services, or works from suppliers in accordance with your company’s requirements. Procurement involves a series of activities, including requisitioning, ordering, receiving, and payment for the products or services. Procurement is a more operational and transactional aspect of the supply chain management process. The main goal of procurement is to ensure that your company receives the goods and services it needs in a timely and cost-effective manner, while adhering to quality standards and compliance requirements.

Key Elements of Procurement

Requisitioning: The procurement process starts with identifying your company’s needs and generating purchase requisitions based on those requirements.

Purchase Order Management: Procurement involves creating purchase orders, sending them to suppliers, and tracking their status to ensure timely delivery.

Receiving and Inspection: Upon delivery, professionals can work to verify the quality and quantity of the received goods and services, ensuring they meet the specified criteria.

Invoicing and Payments: Procurement helps manage the payment processes, including supplier invoices and ensuring accuracy.

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Sourcing focuses on supplier identification evaluation, and selection, while procurement covers the entire purchasing process from requisitioning to payment. It is important that as a business with a focus in supply chain that your company understands the distinction between these two processes. As a reputable 3PL with over 30 years in comprehensive supply chain management, we understand the importance of both sourcing and procurement. Our team of experts have the knowledge and expertise your business needs to be successful in sourcing and procurement, so that you can set yourself apart from the rest and love your supply chain!

Ready to work with a reputable 3PL? Let’s chat, our experts are waiting to help!

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