What Is The Role of Sourcing in Procurement?

Sourcing versus procurement — What is the difference between the two? Although these terms are frequently used interchangeably, they are very different. While sourcing constitutes a pivotal component within the procurement cycle, determining the means and origins of acquiring essential goods and services for business expansion, procurement encompasses a broader spectrum of activities. If you are contemplating the establishment of a dedicated sourcing workstream within your procurement workflow, this article is for you.

Procurement

Procurement, in essence, is a comprehensive process involving the selection and acquisition of goods and services essential for your business operations. This involves meticulous planning, budgeting, ordering, receiving, paying, and supplier management, with two main stages: sourcing and purchasing.

In the sourcing phase, the emphasis lies on identifying, evaluating, and selecting suppliers through rigorous market research, bid solicitation, contract negotiation, and supplier integration. This strategic endeavor sets the stage for optimized procurement.

Purchasing, the next phase, involves the execution of orders, timely processing of payments, and receipt of goods and services in accordance with specifications, ultimately ensures employee satisfaction.

Sourcing

Sourcing, at its core, is a strategic process dedicated to identifying the best suppliers to meet your business needs. Its overarching goals are cost reduction, quality enhancement, and efficiency improvement in procurement. 

It's important to understand that sourcing and purchasing are indispensable components of the procurement process, each with distinct goals, focuses, timeframes, and functions.

Sourcing vs. Purchasing

Sourcing and purchasing are different parts of the procurement process, each with its own focus and goals. Sourcing is about finding the best suppliers for the long term, looking at the market and building relationships. It involves tasks like market research, bidding, negotiation, and integrating suppliers strategically.

On the other hand, purchasing is more about getting goods and services quickly, with a focus on short-term needs. The emphasis is on the actual items, the order process, and tasks like managing orders, tracking deliveries, checking invoices, and handling payments. Sourcing adds value strategically, while purchasing is more about saving costs in the day-to-day operations of getting what's needed.

SourcingPurchasingGoal: Identify the best suppliersGoal: Acquire goods and servicesFocus: On suppliers and the marketFocus: On goods and services, and the orderTimeframe: Long-term and proactiveTimeframe: Short-term and reactiveProcess Components: Market research, bid solicitation, negotiation, supplier integration

Process Components: Purchase orders, delivery tracking, invoice verification, payment processing, supplier management

Function: Strategic and value-additiveFunction: Operational and cost-saving

Creating a Strategic Sourcing Process

Sourcing entails a meticulous series of steps to identify and secure optimal suppliers. Here are steps to help you navigate the sourcing process:

• Identify the need by clearly defining the scope, specifications, objectives, budget, timeline, and stakeholders involved.
• Conduct market research by researching potential suppliers' capabilities, prices, quality, reputation, and market trends.
• Set a sourcing strategy by choosing between general or strategic sourcing and decide on using single or multiple suppliers.
• Solicit Bids through RFPs/RFQs. Reach out to potential suppliers with detailed requests for proposals or quotations.
• Bid Review and Negotiation by evaluating bids, ranking suppliers, and engaging in negotiations for favorable terms.
• Select a supplier and Integration: Finalize contracts with the best supplier and seamlessly integrate them into your system.
• Establish key performance indicators (KPIs) and continuously monitor supplier performance.

Strategic Sourcing to Optimize the Procurement Cycle

Optimizing the sourcing process is pivotal for a seamless procurement cycle. To achieve a seamless procurement flow, consider implementing the following strategies.

Firstly, it is essential to identify and prioritize requirements early in the process. Utilizing tools such as the solutions offered by ConvergentIS can be an instrumental tool in aligning procurement requirements with overarching business goals. This ensures that sourcing is integrated into the strategic vision from the outset, facilitating a more cohesive and purposeful procurement cycle.

A crucial step in the sourcing process involves conducting thorough research on potential suppliers. Leveraging ConvergentIS sourcing solutions provides comprehensive visibility into the capabilities and credibility of suppliers. This informed approach helps in making strategic decisions, ensuring that chosen suppliers align with the organization's needs and standards.

Implementing a standardized scoring process is another key strategy.

Building and maintaining strong supplier relationships is a cornerstone of successful sourcing. Fostering collaboration and open communication creates an environment for mutually beneficial solutions, establishing a foundation for long-term partnerships.

Lastly, continuous monitoring and improvement are vital components of an optimized sourcing process. Leveraging ConvergentIS sourcing tools provides real-time insights into metrics such as total spend, cycle time, and quantified savings. This data-driven approach enables proactive decision-making, ensuring that the sourcing process remains agile and responsive to evolving organizational needs.

By incorporating these strategies, organizations can unlock a smoother procurement flow, optimizing the sourcing process for sustained success.

Alongside sourcing comes the ConvergentIS Procurement Gateway, the #1 Procure to Pay Add-On For SAP. Learn more about our solution using the link above.