WHAT IS THE DIFFERENCE BETWEEN SOURCING AND PROCUREMENT?
Purchasing, Sourcing & Procurement
In our daily work, we often see sourcing and procurement. Many people don’t know the difference between sourcing and procurement, which leads to unnecessary misunderstanding. Here, we will explain the difference between sourcing and procurement as well purchasing in detail, so as to facilitate everyone’s understanding. This article only discusses the difference between sourcing and procurement from the view of industry and projects.
Procurement pays more attention to strategy, which is a complete modern procurement process. Procurement usually refers to the whole process of supply chain from sourcing, purchasing, expediting, logistics, site materials management and warehousing to acquire goods, services, or works from an external source, generally through tendering or competitive bidding process.
Sourcing
Sourcing is the first procurement step for the whole procurement process. During this process, potential supplier or vendor will receive RFQs (requests for quotation) and respond to the RFQs, and then the response approximate figures, data or information may be put into feasibility study or a value engineering trade-off. The owner or owner’s consultant will prepare preferred vendor lists then develop Bidders list, approved supplier list.
Purchasing
After this step, during the next step “purchasing”, the approved suppliers are recontacted, formal bids are solicited via a document such as a request for proposal (RFP), the suppliers now know this is a serious bid request. Bidders will submit technical and commercial proposals, responses are evaluated and conditioned for commercial and technical acceptance. Once the bid evaluations completed, bidder will be selected, then Purchase Order (PO) terms and conditions (warranties, terms) negotiated then signed. From the bid responses, a recommendation to purchase is made, and then, with Owner concurrence, POs and contracts are drawn up and negotiated for price, delivery, spares, service, payment terms, and the like, with the chosen supplier.
Procurement Management
After sourcing and purchasing activities completed, contract execution management will commence, and then expediting, logistics, site materials management and warehousing will be followed.
The difference between sourcing, purchasing and procurement
- In the process “sourcing”, special category will be developed; sourcing is a very important link, which has high requirements for the prediction of potential risks. Sourcing is responsible for the initial supplier search and screening.
- Purchasing is to purchase the right quantity of products at the right time according to approved potential suppliers list, combined with production and sales needs.
Sourcing analyzed the risks of the whole project and decided to start the project. Purchaser is the executor of the project, that is, to discuss and compare prices with suppliers, determine specific suppliers, confirm the delivery date with documents, and coordinate with factories. Sourcing fix the overall direction of a project, and Purchase is the implementer of a project in the right direction, mainly performing specific daily purchasing tasks.
Compared with Sourcing, Purchasing pays more attention to order processing, sourcing’s main task is to develop suppliers.
