Understanding the Difference Between Sourcing and Procurement

In the world of supply chain management and corporate operations, two terms that are often used interchangeably but serve distinct purposes are sourcing and procurement.

Let’s start with the definitions, according to the Association of Supply Chain Management (ASCM) Dictionary:

Sourcing	Procurement
The process of identifying a company that provides a needed good or service.	The business functions of procurement planning, purchasing, inventory control, traffic, receiving, incoming inspection, and salvage operations.

Sourcing is simply finding a specific supply option, and procurement covers the full process of getting the goods to the destination. While both are essential components of an organization’s efforts to acquire goods and services, they involve different processes, goals, and strategies. Let’s explore the differences between sourcing and procurement to gain a deeper understanding of their respective roles in the business world.

Sourcing: The Art of Finding the Right Suppliers

Sourcing is primarily concerned with identifying, evaluating, and selecting the most suitable suppliers or vendors to fulfill an organization’s needs. Empress Brokers International helps companies with product sourcing as the initial step in the procurement process and is focused on creating a robust and reliable supplier base. Sourcing aims to answer the question, “Who can provide us with the products or services we require?”

Key Aspects of Sourcing:

1. Supplier Selection: Sourcing involves researching and assessing potential suppliers to identify those that offer the best value in terms of quality, price, reliability, and other relevant factors.
2. Negotiation: Negotiation is a crucial aspect of sourcing, as it entails discussing terms and conditions with suppliers, including pricing, delivery schedules, and quality expectations.
3. Supplier Relationship Management: Building and maintaining positive relationships with chosen suppliers is essential to ensure a steady supply of goods and services.
4. Risk Assessment: Sourcing professionals must evaluate and mitigate risks associated with suppliers, such as geopolitical, financial, and operational risks.
5. Market Analysis: Understanding market trends, pricing dynamics, and supply and demand factors is integral to effective sourcing.

In summary, sourcing focuses on finding the right suppliers and establishing the foundation for successful procurement activities. It is a strategic process that sets the stage for cost-effective and efficient procurement.

Procurement: The Art of Acquiring Goods and Services

Procurement, on the other hand, is the broader process that encompasses sourcing but goes beyond supplier selection. In the ASCM definition, it is the business function covering the process of acquiring goods, and it deals with the entire acquisition process, including ordering, receiving, and paying for goods or services. In essence, procurement answers the question, “How do we acquire and manage the goods and services we need from the chosen suppliers?”

Key Aspects of Procurement:

1. Purchase Orders: Procurement involves creating and managing purchase orders that detail the specific goods or services to be acquired, quantities, prices, and delivery terms.
2. Receiving and Inspection: Once goods or services are delivered, procurement professionals are responsible for receiving, inspecting, and verifying that they meet the agreed-upon quality and quantity standards.
3. Payment and Invoicing: Managing payments to suppliers and resolving any discrepancies between invoices and delivered goods or services falls under the purview of procurement.
4. Inventory Management: Efficient procurement includes managing inventory levels to prevent overstocking or understocking of goods.
5. Contract Management: Procurement often involves maintaining and updating contracts with suppliers to ensure terms and conditions are met.

In a nutshell, procurement is about executing and managing the transactions that enable an organization to acquire the necessary goods and services while maintaining cost control, quality, and adherence to contractual agreements. Empress Brokers International and our partner Prosperity Solutions help companies manage the full procurement process with our Managed Services offering.

The Synergy Between Sourcing and Procurement

Sourcing and procurement are not isolated processes; they are interconnected and should work in tandem to achieve an organization’s objectives. Effective sourcing ensures that the right suppliers are selected, which simplifies and optimizes the procurement process. Meanwhile, effective procurement ensures that the organization receives the goods and services as per the agreed terms, ultimately realizing the benefits of a well-executed sourcing strategy.

In conclusion, sourcing and procurement are essential functions within the supply chain and corporate operations. Sourcing is the art of selecting the right suppliers, while procurement is the process of acquiring and managing the goods and services provided by those suppliers. By understanding the differences between these two functions and their interdependence, organizations can enhance their efficiency, reduce costs, and improve the quality of their products and services.