Sourcing vs Procurement: Covering the Pros and Cons

When it comes to securing inventory there are two main approaches that companies can take. The first is known as sourcing – which is mainly applied to direct goods inventory. The second is procurement, which is more aligned with indirect inventory supplies. Simply put, sourcing is a strategy that is meant for companies that stock pre-made, pre-assembled final consumer products. An example of this would be a computer and technology store that resells a whole portfolio of brands, makes, and models. This store would source the fully built computers and laptops from suppliers and then resell them to consumers. Whereas in the same industry, a company that utilizes procurement would be the company that builds the computers themselves and then sells those products to consumers. In some rare cases, there are companies that need to utilize both sourcing and procurement in order to maintain their inventory. Similarly, sourcing can be a function of procurement software that a company employs. 

Procurement teams need to build effective strategies that are best suited to optimize and strengthen their own supply lines. These strategies can be a conglomerate of procurement and sourcing, or predominantly lean one way or the other. There are plenty of tactics involved in building a strategic sourcing process into an organization, that lead to higher efficiency, and overall lifetime savings. 

No matter if your procurement or supply-chain team is going to focus on building procurement strategies, or sourcing strategies, it’s likely that they’ll need to utilize software to bolster their capabilities and help them better filter out suppliers. The use of e-sourcing and e-procurement software empowers supply-chain teams to optimize company savings and focus on maximizing the efficiency of the internal procurement cycle where possible. 

The Pros and Cons of Sourcing and Procurement

Sourcing and procurement both come with their own sets of pros and cons. Within any specific organization, these pros and cons could differ, as individual company situations should also be taken into consideration when building a comprehensive supply chain strategy. It’s also important to note, that while these strategies do pose differences, there will be a lot of similarities between the actual processes and procedures. Securing the highest quality suppliers at the lowest possible rates, while maximizing company savings, and leveraging the marketplace as much as possible is the ultimate goal of each. 

Sourcing

The sourcing process contains many of the same steps as the procurement process. That’s because, at their distilled cores, procurement and sourcing processes are nearly the same. One of the main functions of the sourcing process is conducting a spend-analysis that provides deeper insight into companies spending habits and highlights unnecessary spending within the sourcing process. These areas of unnecessary spending can be rectified with proper contract management, conducted by e-sourcing software. This allows contract managers to gather more data in real-time on suppliers, while also soliciting forbids, and proposals on supply chain need. This ultimately leads to an element of savings management that benefits the company in the long run by prioritizing both quality and unit pricing. E-sourcing software also considers market positions, working budgets, and other variables that ease the sourcing process from top to bottom. 

Procurement

Procurement processes are going to be very similar to sourcing procedures. While a procurement cycle might be a bit more comprehensive, as it applies through the entire vertical of the company, the supplier communication aspect is going to be extremely similar. Procurement professionals equipped with powerful and robust procurement software utilize this software to gather supplier bids, filter out poorly rated suppliers who don’t meet industry standards or refuse to comply with industry regulations. All of these built-in functions of procurement software, allow procurement professionals and sourcing professionals alike to maximize their company savings, manage suppliers, and cultivate bids on new contracts when they become available. 

The Procurement Process

Procurement is an integrated, end-to-end process that involves sourcing products and services. Procurement is a process that affects the supply chain and plays an instrumental role in meeting the day-to-day business needs. By identifying and prioritizing the products and services required for an organization to operate fluidly, procurement remains a critical facet of the bloodline of any enterprise or organization.

The procurement process follows the following steps, some of which are hard to undertake:

  • Recognizing an organization’s needs
  • Creating a purchase requisition form
  • Reviewing the purchase request
  • Negotiating contracts
  • Requesting quotes
  • Getting budget approvals
  • Receiving goods
  • Matching invoice to purchase order and goods receiving notes
  • Invoice payment
  • Keeping a record of transactions for audit trail

How does an Efficient Procurement Strategy Give you a Competitive Advantage?

An effective procurement process can give tangible cost improvement and improve the agility of the procurement process. During challenging times, procurement professionals would file the procurement procedure in a round file and resort to a hand-to-mouth strategy. Your procurement process can not only save you during challenging times but also create a competitive edge for your enterprise. So, with an efficient procurement strategy, you gain the following benefits:

Competitive advantage

This refers to the ability to provide products or services that are better than your competitors. A competitive advantage is usually developed over a long period, together with other contributions from many different parts of your business.

Supplier selection

An effective procurement process allows an organization or enterprise to select an optimal pool of suppliers, and align these suppliers with the organization’s mission statement. Supplier selection can be done via favorable terms; it promotes and incubates supply chain excellence in the organization.

Cost improvement

An efficient procurement process delivers quick and tangible cost improvements across the supply chain. Therefore, a refined and efficient procurement process can provide your organization with a competitive advantage by reducing costs and causing greater efficiency.

Efficiency

The fundamental purpose of all procurement processes is to utilize the external market optimally to gain a competitive edge in the market. Every item that is sourced must contribute, either directly or negatively, towards competitive positioning. When an organization has an efficient procurement process, procurement can eliminate operational redundancies, enhance collaboration, and identify good and underperforming employees.

Innovation

Procurement staff is required to possess the necessary skills to achieve cost savings, manage risk, manage supplier relationships, and satisfy social responsibility targets. However, nowadays, procurement professionals are required to do more: to possess the innovation mindset and adapt procurement processes with new developments in terms of automation.

Must-Have Procurement Tools

Adopting an automated procurement management system is a strong first step towards efficient sourcing and procurement processes. Therefore, consider the following must-have features when sourcing for a procurement management system.

Integrative Dashboards. Dashboards display important data like real-life notifications, approval requests, requisition, supplier data, and more. By displaying real-life information and data, dashboards keep you updated on how things are going.

Easy Integrations. Integrations with your favorite business applications should be simple and seamless. A procurement management system should integrate with existing business applications such as ERP, customer relationship management CRM, and department software.

Real-Time Reports. One of the underlying reasons for adopting an automated procurement management system is to access real-time reports of procurement processes. Through real-time reports, organizations and businesses can know exactly where, when, and how procurement tasks progress throughout the day.

Data Visibility. The procurement software or management system gives you on-demand, 24/7 data visibility, thus enabling you to plan for the future with aggregated data sourced from your database. Data visibility translates into actionable insights, providing room for decision-making.

Cloud-based Storage. Physical storage is vulnerable to risks of damage and loss. However, cloud-based storage provides immense benefits including remote access, easy access, flexibility, safe and unlimited storage. With a procurement management system, you get to achieve low costs with almost unlimited space. The cloud is surely hard to ignore.

ProcurePort’s Procurement Software

Whether your company utilizes procurement or sourcing as its supply-chain management strategy, ProcurePort has powerful software ready to assist. The ProcurePort product suite is both powerful and user-friendly, all while offering robust and comprehensive tools. Fully allowing procurement and sourcing professionals to get the most out of their time, maximize efficiency, and optimize company savings.