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Sourcing and Procurement: One but Not the Same

A complete exploration of two closely related but different processes. In-depth comparison, recent trends, and best practices included.

This month, we continue our Procurement Basics series and would like to introduce our readers to yet another set of often misused business terminology.

As both sourcing and procurement are related to obtaining supplies for the organization, confusing these two terms is easy. But they are different, although closely related, processes.

Understanding their distinction can help you ensure the coordination between the responsible teams and adopt the right strategies for improving both sourcing and procurement.

Read on to find:

  • Sourcing vs. procurement: key differences
  • Sourcing and procurement: processes’ overview
  • How strategic sourcing influences your business
  • Sourcing and procurement: a detailed comparison
  • How to coordinate sourcing and procurement processes
  • Recent trends in sourcing and procurement

What Is Procurement Process?

Procurement is a set of processes related to acquiring goods and services to satisfy a company’s needs.

For instance, if your company requires raw materials to manufacture its products, you first choose where to procure these materials, send a purchase order to the selected supplier, and pay for delivered items.

And all these activities are parts of the broader procurement process in your organization.

The typical procurement process involves the following steps:

  • Spotting internal needs and creating a purchase requisition;
  • Evaluating the market;
  • Shortlisting suppliers and issuing RFQ or RFP;
  • Reviewing quotations and selecting vendors;
  • Negotiating with suppliers;
  • Creating a purchase order;
  • Expediting and receiving the ordered items;
  • Auditing the delivered order to ensure supplier compliance;
  • Receiving a goods receipt and an invoice;
  • Performing a 3-way-match;
  • Making a payment;
  • Keeping record;
  • Assessing the supplier performance and establishing a vendor relationship.

Simply put, procurement steps combine sourcing (selecting and negotiating with suppliers) and purchasing (placing a purchase order and paying) processes.

However, it is crucial to understand that procurement is a multi-stage complex process, which in addition to sourcing and purchasing, involves supplier management, contract management, and data analysis.

With sourcing as its subset, procurement directly impacts a company’s bottom line performance and competitiveness.