A lot of people often use the terms procurement and sourcing interchangeably. While they are indeed linked, they are quite distinct processes in themselves. Procurement is best described as the business of obtaining the raw materials needed by a company. Sourcing, on the other hand, is the operational process concerned with finding and vetting all prospective suppliers of the said raw materials. As can be seen, the two go hand-in-hand and complement each other.
The Critical Role of Sourcing Specialists
Procurement teams often have a sourcing specialist onboard who is responsible for overseeing the procurement process. Sourcing specialists’ roles are two-fold:
1. They manage, negotiate and revise contracts and secure new vendors from the supply market
2. They audit procurement systems and review processes to ensure smooth operations
Today’s procurement departments have adopted a strategic sourcing procedure in lieu of the traditional tactical one.
Strategic Sourcing versus Tactical Sourcing
In days gone by, the process of purchasing goods and services was a reactionary affair whereby goods and raw materials were procured on an as-needed basis. However, in today’s fast-paced world, with goods and services coming from around the world, businesses cannot afford the luxury of tactical sourcing. To keep supply chains optimal and reduce lag times, sourcing must be strategic.
Strategic sourcing means a sourcing specialist must look at all the moving parts in the supply chain, figure out what needs to be purchased, and identify potential suppliers in a cost-effective manner. This process has of course been simplified thanks to the advancement of technology and availability of e-sourcing software.
The 5-Step Sourcing Process
Now that we have answered the question ‘What is sourcing? and have looked at the role of one of the key people needed in the strategic sourcing process, it’s time to consider the components that make up the entire process. These are:
1. Spend analysis
One of the fundamental objectives of the procurement team is finding ways to mitigate costs and streamline operations. Spend analysis is a strategy employed to identify areas in the procurement wherein costs can be decreased along the supply chain.
2. e-Sourcing and e-Procurement
The business landscape has changed thanks to technology. Along with it – operational processes have become digital. E-sourcing is simply purchasing that’s being done electronically and the same goes for e-procurement. What this means is that sourcing in supply chain, identification, and selection of vendors is all realized using digital mediums.
3. Contract management
Once potential suppliers have been selected and contracted it’s imperative to make sure that contracts are managed correctly and renewed on time. Now, one sure-fire way to guarantee this is with contract management software. ProcurePort offers a noteworthy solution that acts as a single repository for all vendor contracts. Access and retrieve contracts from one central repository 24/7.
4. Supplier management
Vendors must be periodically reviewed, and their pricing models evaluated against new competitors. This aspect of the procurement process is known as supplier management. The supplier’s performance is also gauged and critiqued. If they are still worthy of your business and their prices are fair, an enterprise may wish to continue doing business with them. If not, then it might be time to switch to a new supplier. Additionally, if during the evaluation, weak spots are observed, the purchasing team and the suppliers can produce solutions to rectify the issue.
5. Savings management
The bottom line is extremely important in business. And finding ways to minimize costs should be a priority for all teams. In the sourcing process, the savings management step allows for forecasting of costs and structured saving plans to be created. Having this contingency plan allows supplies to be purchased ahead of time, avoiding reactionary, panic buying; the key to better supply chain management.
Benefits of a Sourcing System
E-Sourcing, sometimes referred to as electronic sourcing, describes the use of web-based systems to collect and compare data of suppliers to help the buyer make informed decisions. This system offers many benefits: it helps organizations achieve massive cost savings, it increases the visibility of key business operations, and it reduces the amount of time it takes procurement staff to do their job. Investing in a sourcing system is a critical fast step of ensuring that you remain ahead in your routine procurement management and planning processes.
The benefits of electronic sourcing include:
- Reducing costs. By accessing a broader range of suppliers and using different e-sourcing strategies, electronic sourcing provides significant cost savings for enterprises.
- Saving time and boosting efficiency. Electronic sourcing speeds up the time it takes to process a contract. It does this by reducing the amount of time procurement professionals spend on the tendering process, thus freeing staff up for other tasks.
- Use detailed supplier information. E-sourcing provides transparency between suppliers and buyers. By using a portal, teams can access all tender opportunities from a supplier, including status, deadlines, and other key information.
- Improve compliance. Since all procurement-related data and information is stored in one place, auditing is simple and complies with all the necessary regulatory procedures. The system also displays why and how a supplier was selected, thus providing transparency in auditing exercises.
- Reduces risk. The strategic process of e-sourcing provides companies with direct control over their processes – and also provides an audit path for compliance processes.
Invest in Robust Sourcing Systems for Your Business
Procurement teams now have access to an array of software to help them mitigate organizational spending, improve efficiency and management. ProcurePort proudly provides a suite of procurement solutions that make life easier from RFX templates, contract management software to reverse auction systems. Contact us to discuss customized procurement solutions for your business.