Procurement vs Sourcing: Startup Management Essentials

Tori Katz
June 21, 2022

Table of Contents

• A Quick Comparison
• How Procurement Gets Done
• How Sourcing Gets Done
• Why Strategic Sourcing is Important to Business
• The Sourcing vs. Procurement Distinction
• How to manage procurement and sourcing effectively
• Learnings

A Quick Comparison

Procurement is the act of buying goods and services, typically used in a business context. Sourcing is the process of finding suppliers for those goods and services, which includes vetting and negotiating with them.
For instance, knowing where to find a product may eliminate the need for repeated sourcing efforts.

How Procurement Gets Done

The procurement process requires discipline and accountability, ultimately leading to cost reduction through competitive pricing. It starts with a purchase requisition, followed by bidding and the purchase order process. Supplier management ensures that goods are delivered satisfactorily, with invoice processing ensuring payment to the supplier.

How Sourcing Gets Done

Sourcing, being just a part of procurement, can be less complicated. A strategic approach to sourcing requires an analysis of business needs and finding the best value for each spend.

Why Strategic Sourcing is Important to Business

Strategic sourcing helps with more than just managing spend; it also streamlines supply chain management. Effective strategic sourcing needs annual planning and re-evaluation for smoother purchasing operations, ultimately leading to cost efficiency.

Steps in Strategic Sourcing:

1. Understand what you need - Categorize expenses to help track spending.
2. Research the market - Be aware of current market conditions and their implications.
3. Choose your sourcing strategy - Decide how to select suppliers based on your company's needs.
4. Solicit bids - Ask suppliers to bid on your requirements, ensuring they fit your sourcing strategy.
5. Negotiate with suppliers - Obtain the best deal possible before making a purchase.
6. Sign contracts - Issue purchase orders to suppliers and manage the delivery process.
7. Assess supplier performance - Monitor how well suppliers deliver goods and adjust as needed.

The Sourcing vs. Procurement Distinction

• Scope: Sourcing focuses on supplier selection while procurement covers the entire supply chain management continuum.
• Timing: Sourcing occurs after a need is identified, but regular suppliers might not require repeated sourcing.
• Focus: Procurement manages the overall purchasing process, ensuring that the company has necessary resources.
• Function: Sourcing is about deciding where to buy; procurement handles the subsequent purchasing paperwork.

How to manage procurement and sourcing effectively

As businesses grow, their needs for effective management of procurement and sourcing processes also expand. Automation tools like procurement software can greatly simplify these processes, offering solutions for purchasing management.

Learnings

Understanding the distinction between procurement and sourcing is crucial for maintaining an efficient supply chain. Strategic sourcing involves a well-structured approach to vendor management, needing regular evaluation and fine-tuning for optimal efficiency.
Effective utilization of procurement software, like Control Hub, automates and streamlines the purchasing process, ultimately resulting in better cost control and compliance.