Procurement & Sourcing - which is which again?

Sometimes, in the midst of discussing Bid Matrix, Purchase Price Variance, and Webservices Integration, one can lose sight of the bigger picture. The most basic concept to understand is the difference between the terms “Sourcing” and “Procurement”.

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Thursday, March 21, 2019

Sometimes, in the midst of discussing Bid Matrix, Purchase Price Variance, and Webservices Integration, one can lose sight of the bigger picture. The most basic concept to understand is the difference between the terms “Sourcing” and “Procurement”.

The procurement industry is seeing an influx of new talent and it can be good to revisit the basics from time to time to make sure everyone has a common understanding of terms. Depending on the organization and stakeholders, there can be different boundaries to each term, but each has a unique set of characteristics.
The most concise explanation of the difference between these terms is as follows:

  • Sourcing is everything BEFORE the contract
  • Procurement is everything AFTER the contract

To better understand the differences between Sourcing and Procurement, it’s helpful to translate into a buying activity from 'real life', like buying a car. When you think about a car purchase and ownership, you most likely go through the following (long list of) activities:

  • Do we rally need a car?

  • Once we have decided on a car, how much will each car cost factoring in everything from options, financing, trade-in etc. 
  • What kind of car best suits our needs?
  • What financial negotiation points are available?
  • What kind of cars are available?
  • Based on the all-in offers from the dealers, which do we choose?
  • What are the relative strengths/weaknesses of each and how do they fit our needs?
  • With the signed contract, we need to arrange for payment, delivery and insurance  
  • What price range am I looking at?
  • Now that we own the car, we need to manage our relationship with the dealer
  • What dealers are there and how's their reputation?
  • How are payments authorized and processed?
  • What terms and conditions are the dealers offering beyond just the price (e.g. financing, warranty, service)?
  • How do we organize service visits, updates, accessories, and upkeep?
  • How do the non-price aspects compare across dealers?
 

 

For the purposes of our car buying discussion, Sourcing is all activities involved with determining our need, market availability, vendor qualification, offer evaluation and negotiation. Procurement is the signing of the contract, activities related to delivery and setup, making payments, maintaining the relationship with the dealer, and upkeep of the car over time. 

Regardless of the specific steps that your organization includes in each definition, as a general rule, Sourcing and Procurement are separated by the establishment of a formal commercial relationship with a supplier. 

For more information on eSourcing, check out our blog for articles like What is eSourcing?or download our whitepaper "Sourcing: The Do's and Don'ts of Digitalization". 

 

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