Key Takeaways
- Sourcing is a critical function that involves identifying, evaluating and selecting suppliers to obtain goods and services for a business operation.
- Procurement is a fundamental business function responsible for acquiring goods and services for an organization’s operations.
- Sourcing is seen as a cyclical or ongoing process as supplier relationships evolve and companies regularly access their supplier base. At the same time, procurement is a continuous, end-to-end process that encompasses various phases, from identifying needs to supplier performance evaluation.
What is Sourcing?
Sourcing is a critical function that involves identifying, evaluating and selecting suppliers to obtain goods and services necessary for a business’s operations. This process is pivotal because it directly impacts a company’s cost structure, quality of products or services, and overall competitiveness in the market.
Sourcing is a multifaceted process that involves supplier identification, evaluation, negotiation, contract management, and ongoing supplier relationship management. It plays a vital role in a company’s cost structure and overall competitiveness, making it essential for an organization to develop effective sourcing strategies and practices.
Sourcing is not a one-time activity; it requires continuous evaluation and adjustment.
What is Procurement?
Procurement is a fundamental business function responsible for acquiring goods and services required for an organization’s operations. It encompasses a wide range of activities, from identifying needs and sourcing suppliers to negotiating contracts, managing supplier relationships, and ensuring the timely delivery of goods and services.
An effective procurement process is crucial for cost control, quality assurance, and overall business success. Procurement begins with identifying the needs of an organization, which involves understanding the requirements for goods and services, their quantity, quality and delivery timeline.
Thus, procurement is a comprehensive process that involves identifying needs, sourcing suppliers, negotiating contracts, managing supplier relationships, and ensuring compliance. A well-executed procurement process is essential for achieving operational excellence and strategic business goals.
Difference Between Supplier and Procurement
- Sourcing primarily deals with identifying, evaluating, and selecting suppliers or vendors to obtain goods and services. At the same time, procurement, on the other hand, encompasses the entire process of acquiring goods and services, including sourcing, purchasing, contract negotiation, supplier management and payment.
- The primary objective of sourcing is to identify the most suitable supplier based on factors like cost, quality, reliability, and capability. At the same time, procurement focuses on ensuring that goods and services are acquired efficiently, cost-effectively, and in compliance with contracts and negotiations.
- Sourcing is the responsibility of procurement or supply chain professionals specialized in supplier selection and relationship management. In contrast, procurement involves various roles, including buyers, contract managers, logistics coordinators, and finance teams, responsible for different aspects of the purchasing process.
- Sourcing is seen as a cyclical or ongoing process as supplier relationships evolve and companies regularly access their supplier base. At the same time, procurement is a continuous, end-to-end process encompassing various phases, from identifying needs to supplier performance evaluation.
- Sourcing primarily focuses on strategic decision-making, such as selecting suppliers based on long-term relationships and strategic fit with the organization’s goals. At the same time, procurement involves a broader range of decision-making, including decisions related to day-to-day purchasing activities, such as order placement and transaction details.
Comparison Between Sourcing and Procurement
| Parameters | Sourcing | Procurement |
|---|---|---|
| Definition | Deals with identification, evaluation, and selection of suppliers | Deals with sourcing, purchasing, contract negotiation, supplier management and negotiation |
| Objective | To identify suitable suppliers | To ensure goods are acquired efficiently and in compliance with regulations. |
| Responsibility | Typically, procurement or supply chain professionals | Includes various roles from buyers to finance teams |
| Process | Cyclical or ongoing process | Continuous and end-to-end process |
| Decision-making | Strategic decision-making | Broader range of decision-making |
- https://onlinelibrary.wiley.com/doi/abs/10.1111/rec.13199
- https://www.tandfonline.com/doi/abs/10.1080/16258312.2006.11517156
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