What is sourcing? What is procurement? What is the difference?


Dec 21, 2022 | Basic 101: Introduction to procurement



Stawan photo

Stawan

Dec 21, 20223 min read


Sourcing and procurement are two distinct processes that ensure an organization gets the best possible value for its money. Sourcing involves identifying potential suppliers, evaluating their capabilities, and negotiating contracts. Procurement involves purchasing goods and services, managing supplier relationships, and resolving disputes. Both processes are critical to the success of an organization and help ensure it has the resources needed to operate and grow.


Sourcing refers to the process of finding and acquiring goods and services that an organization needs to operate and grow. This process typically involves identifying potential suppliers, evaluating their capabilities and performance, negotiating contracts and terms, and building relationships with key suppliers. Sourcing is typically focused on finding the best possible value for the organization and may involve a variety of different activities such as market research, cost analysis, and supplier evaluation. 

Procurement, on the other hand, refers to the actual act of purchasing goods and services. This includes everything from issuing purchase orders and receiving invoices, to managing supplier relationships and resolving disputes. Procurement is typically focused on ensuring that the organization gets the goods and services it needs in a timely and cost-effective manner, and may involve a variety of different activities such as inventory management, contract management, and supplier performance monitoring. 

While sourcing and procurement are closely related, they are distinct processes that are typically managed by different teams within an organization. Here are a couple of specific examples of how sourcing and procurement might work in practice: 

Sourcing Raw Materials: Manufacturing companies like Ford, General Motors, and Toyota that produce car parts need to source steel for their production. The sourcing team is responsible for identifying potential suppliers of steel, evaluating their capabilities and performance, and negotiating contracts and terms with the best suppliers. They conduct market research to find the best steel suppliers, analyze the costs of different types of steel and compare the quality. They also check the supplier's compliance with environmental and safety regulations, and their track record of on-time delivery. Once the contracts are signed, the procurement team is responsible for issuing purchase orders, receiving invoices, and managing supplier relationships. 

Procurement of IT services: Software development companies like IBM and  Microsoft need to procure IT services such as cloud hosting and software development services. The procurement team is responsible for identifying potential suppliers of IT services, evaluating their capabilities and performance, and negotiating contracts and terms with the best suppliers. They conduct market research to find the best IT service providers, analyze the costs of different services and compare the quality. They also check the supplier's compliance with data security regulations and their track record of delivering on time and on budget. Once the contracts are signed, the procurement team is responsible for issuing purchase orders, receiving invoices, and managing supplier relationships. 

In both these case studies, it's clear that sourcing and procurement are closely related but distinct processes. The sourcing team is responsible for identifying and evaluating potential suppliers, while the procurement team is responsible for carrying out the purchase of goods and services and managing supplier relationships. These processes are critical to the success of the organization, as they help to ensure that the company gets the best possible value for its money and that it has the goods and services it needs to operate and grow. 

FactWise is an end-to-end procurement platform generating win-win outcomes for buyers and suppliers globally. The solution offers integrated Source-to-PO and Procure-to-Pay modules to enable teams to transform their sourcing and procurement journeys together. Leverage FactWise for better RfX management via automation and analytics, strategic sourcing, key supplier insights and supplier management, goods tracking, and accurate, on-time payments. Our mission at FactWise is to delight users and provide sustainable positive impact  to the organizations we serve. 


About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


Comments(0)

Show all


No comments to show


Suggested Articles

logo  

FactWise

Privacy Policy

Terms & Conditions


©Copyright 2024. FactWise. All Rights Reserved.