Many people think that procurement and sourcing are the same. So, these two terms are used interchangeably. While both of these processes are part of the supply chain and are many-a-times carried out by strategic sourcing companies, but they are not the same. If you are confused about them, then let us figure out the differences between them. But first, it’s time to know the definition of each process.
What Is Termed A Procurement?
Know that procurement is a term that encompasses a whole chain of processes. It includes sourcing, which involves making use of suppliers for gathering the needed materials. These materials are then used for making services and products.
To carry out procurement, orders have to be placed with suppliers. First, the order has to get confirmed; then, once the goods are received, it has to be paid for. So, note that procurement solutions encompass everything from price negotiations to inventory control. Overall, it can be said that procurement is the step that begins the supply chain.
What Are The Features Which Procurement Software Should Have?
In a rapidly digitizing world, companies need to arm their procurement departments with the latest technology. With the help of this, they will stay alive in a viciously competitive market by working efficiently. Any procurement software should have two necessary features in place. These are:
1. Interactive Dashboards
The main aim of any procurement software should be to convert the gathered data into easily understandable visuals. Moreover, the dashboard should display status updates, request fulfillment, and other urgent matters. Note that the dashboard should be easily upgradeable. Overall, the entire software should allow for integration so that you can connect it with your most-used apps.
2. Real-Time Reports
The procurement software should incorporate features that will show real-time reports. These real-time reports could be about daily processes or long term plans. With such tools, teams will be able to better plan for future events and problems. Note that the entire software should allow for cloud-based storage so that storing and accessing reports and related data becomes easier.
What Is Termed Assourcing?
Sourcing is best described as a sub-section of the larger procurement plan of a company. Do note that it is the stage that arrives before purchases can be carried out. After all, before getting and buying your materials from the suppliers, you will first have to vet and check those suppliers.
The main aim of sourcing is to find a quality, reliable, and affordable suppliers to get the goods you need. With this, you will be able to increase your company’s profit margins and get high-quality materials at budget prices. If sourcing is done right, then the rest of the procurement process becomes streamlined. After all, if you work with a trusted supplier, there’s no need to worry about delay in supply or payment processing issues.
What Is The Sourcing Process?
The sourcing process consists of various parts, which are:
1. Know Consumer And Business Needs
The sourcing team has to figure out what the consumer wants and how it plans to give it to them. To figure out the customer’s needs, the sourcing department can get the needed reports from the marketing department as well.
2. Assess The Market Offerings
Before beginning sourcing, the department has to figure out if the market has the needed materials to make the product. Moreover, there are other factors to be considered as well, like- how many suppliers of the material are there? Is the material cheaper elsewhere? What is the cost of purchasing it? Etc.
3. Figuring Out Supplier Qualities
Before settling on suppliers, the team must figure out the supplier’s ideal qualities. Decisions should be made depending on the price of the material, the cost of supply, the company’s budget constraints, and other such related factors. Once all of it is sorted out, the suppliers can be fixed, and negotiations can occur. After negotiations get done to both parties’satisfaction, a contract is put in place, and the supply begins.
What Is The Difference Between Sourcing And Procurement?
1. Direct And Indirect Goods And Services
As said above, procurement and sourcing are part of the same process. Sourcing is, in fact, a sub-section of the procurement solution process. So what separates these two is thekind of services and goods they deal with. Sourcing focuses on direct services and goods since it involves dealing with the suppliers and their materials more intimately. Procurement, on the other hand, deals with indirect services and goods.
Note that it’s not always compulsory or necessary for a company to have a sourcing department. After all, common goods and services don’t need an experienced and trained sourcing team for vetting suppliers. Generally, the procurement team can manage and address the suppliers and maintain the other steps in the procurement chain. When a company is dealing with specialized materials, then having a sourcing department will allow them to get the very best suppliers easily.
Note that a procurement department is not necessary for all conditions as well. Sometimes, there are auctions for purchasing materials. In those cases, the sourcing department can source the materials, get it, and pay for it without the procurement team ever getting involved.
3. Supplier Vs. Purchasing
Sourcing deals with suppliers exclusively. So, while procurement encompasses it, know that it mainly deals with purchasing the materials needed for producing the goods. Also, note that sourcing is the step that starts procurement. After all, without the needed materials, how can production even begin?
So, both the procurement and the sourcing departments are necessary. Many small companies merge the two departments to reduce the working expenditure, but keeping both separate is beneficial in the long run. If a company doesn’t have the funds to maintain a sourcing team for the long term, they can hire one of the strategic sourcing companies. These companies will take over the sourcing department’s job and ensure that the business gets the suppliers they want and that too within their budget.