Understanding The Difference Between Sourcing And Procurement

Sourcing and procurement are often confused with being the same thing. Though closely related, they have very different meanings. Both processes are responsible for acquiring goods and services for an organization and are crucial when you buy building material supply in wholesale. They help maintain an effective supply chain to enable a business to deliver goods and services to its customers consistently. Since there is a significant disruption in the supply chains, it has become all the more important to have a solid sourcing and procurement strategy in order to keep the costs in check and ensure there are no gaps in supply. But, you need to understand how sourcing and procurement are different from each other.

Sourcing

Sourcing aims at finding, evaluating, and engaging suppliers to achieve cost savings and the best value for goods and services. It is a stage before procurement and consists of the following steps:

Defining a business’ purchasing needs: This is the first step in the sourcing process which involves determining what the business needs to operate and includes evaluating how much the company is currently spending, what it is spending on against budgets, and identifying any opportunities to make savings when planning to buy building material supply in wholesale.

Assessing the market: It involves researching cost drivers, including raw material, labor, and transportation cost and also estimates current market trends, the competitive landscape, who the key suppliers are, and the opportunities as well as risks present in the marketplace.

Procurement

Procurement begins when the supplier contracts have been signed. It involves buying the goods and services that enable an organization to operate profitably and ethically. This process consists of eh following steps:

Reviewing purchase requisition: It is an internal document from an employee asking to make a purchase. The procurement department checks if this document contains sufficient information and a valid business reason for approval.

Sending purchase order: After the approval of the purchase requisition, a purchase order is created and sent to the supplier outlining what goods/services are needed and in what quantities and prices previously agreed in the sourcing process.

Expediting: It involves communicating about the quality, schedules, and compliance with the supplier in order to ensure that they are on track to meet the agreed delivery deadline.

Receiving goods: When an order is received, it should be checked to ensure that it meets the quantity and quality standards specified in the purchase order.

Process invoice: Once an invoice is received from the supplier, a three-way matching is carried out to make sure that purchase orders, invoices, and order receipts display the same quantities and values in order to confirm that everything ordered was received and to prevent any overspending.

Payments: This is the final step of the procurement process that ensures the accounts payable team pays suppliers according to their payment terms.

Key Differences Between SourcingAnd Procurement

While procurement is about getting the goods and services required and focuses on what is supplied, sourcing encompasses everything from market research for finding suppliers to evaluating and onboarding them and is more concerned about who makes the supplies possible.

Procurement ensures a steady flow of supplies and inputs to the organization by leveraging the supply chains, and sourcing focuses on building and managing steady supply chains. Hence, procurement works with the existing supply chains, and sourcing mitigates supply risks and builds supply resilience.

Sourcing and procurement are both principal functions, but the sourcing process includes researching the market for new suppliers who supply the products, engaging with them, and evaluating and onboarding the suppliers who provide the right value.

Wrapping Up

Although related, procurement and sourcing are two different functions, and both are equally important in keeping operations running.