In the manufacturing world two very common terms are procurement and sourcing. To the unknowing person, these terms often have the same meaning, but this is incorrect. Although these terms are often used interchangeably, their meanings are different enough that interchanging the two terms can lead many to confusion.
The most likely reason these two terms are freely interchanged is because they both involve purchasing. The terms procurement and sourcing both lie under the large umbrella that is purchasing. Since purchasing is a very general term, it gives the two terms vaguely similar meanings. Each term is a method in which a company can obtain goods or services that meet customer’s needs at the lowest possible cost. In addition to finding an affordable way to obtain goods and services, procurement and sourcing methods must also avoid sacrifices in quality or service. The difference between the two is that although procurement lies under the purchasing umbrella, it also has aspects that come out from under the umbrella, making it a bit more than just purchasing.
The term procurement encompasses many different things. Procurement involves specifications development, value analysis, supplier market research, negotiation, marketing, buying activities, administration of contract, and control of inventory, traffic, receiving and stores. When, however, sourcing is the strategic function and procurement the more operational/tactical function then value analysis, supplier market research, and negotiation would be included in sourcing.
Sourcing’s main role is to reduce costs for all these aspects, making the business more effective and efficient. Procurement is then used to carry out everything sourcing has negotiated (i.e. placing orders, entering order confirmations, etc.).
The difference between procurement and sourcing also depends on the size of your organization. Since the two terms are very similar in meaning, combining the two aspects and also combining job positions related to procurement and sourcing is a common way for small companies to save money. For example, a small organization may have one person in the purchasing department that takes care of both sourcing and procurement. Sourcing and procurement will likely be non-complex for this company, defining both terms generally as purchasing. A larger organization may have hundreds of employees in the purchasing department, creating a large variation between procurement and sourcing. There will likely be job positions dedicated to only sourcing and only procurement. They may even have an entire procurement department with positions within the department that are directly related to sourcing.
Procurement and sourcing are two very closely related terms that both relate to purchasing. The variation between the two depends on the functions and size of your organization. Although, they may seem the same, treating the two as equal could be detrimental to your organization and that is why their differences should not be overlooked.
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