Sourcing and Procurement: Everything You Need to Know 

hile Procurement and sourcing typically live under the same function, they occupy different parts of the purchasing journey. Procurement is the process of purchasing goods while sourcing is the process of identifying and negotiating with suppliers. 

In this blog, we’ll explore sourcing vs. Procurement to better understand the responsibilities of each and how your team can build best-in-class processes to keep your organization supplied, efficient, and cost-effective.  

What is the difference between sourcing and procurement? 

Sourcing is the process of selecting suppliers and building a resilient, regulatory-compliant supply chain. Procurement is the process of managing the acquisition of goods and services. Both processes typically live under a unified Procurement function, though they can be divided into Direct Procurement and Indirect Procurement.  

Importance of sourcing and procurement 

The Procurement organization is one of the most important business units, and it’s becoming more important every year as new regulations and supply chain realities require the function to expand its focus beyond simple cost reductions. Let’s break down the importance of sourcing & procurement separately. 

Why is sourcing important? 

Choosing the right suppliers for materials, goods, and services is crucial to keeping a company running. For starters, sourcing is the foundation of a strong supply chain, which is the foundation of a reliable, efficient company. Sourcing keeps production in every business unit moving.  

Sourcing also keeps costs under control by selecting vendors and negotiating per unit pricing. This is especially true in category-specific sourcing, where purchasing professionals use market-specific knowledge to navigate challenges and business unit needs. Finally, sourcing helps avoid third-party risk by vetting suppliers and contributes to ESG programs by identifying diverse and environmentally friendly suppliers. 

Why is procurement important? 

Procurement is equally important because it holds all those strategic advancements together. A quality Procurement organization builds processes that streamline purchases, control spending, and identify sourcing issues before they become problems. 

Procurement also helps manage the tactical side of supplier relationships, like quality assurance and delivery consistency. Finally, Procurement locks down the savings that strategic sourcing works to set up. By controlling purchasing channels and monitoring for maverick spend and tail spend, Procurement helps the organization decrease savings leakage so forecasts and budgets stay on track.  

Learn More: See how Procurement Performance Management solutions help teams streamline strategic projects and increase the function’s organizational value. 

What are the key differences between sourcing and procurement? 

Aspect	Sourcing	Procurement
Definition	The process of identifying and selecting suppliers for goods and services	The broader end-to-end process of acquiring goods and services
Primary Goal	Finding the best suppliers based on criteria like cost, quality, and reliability	Managing the acquisition of goods and services efficiently and cost-effectively
Focus	Supplier identification, evaluation, and relationship initiation	Order processing, contract management, inventory control, and supplier relationship management
Scope	Narrower in scope, focused on identifying where to source items	Broader in scope, encompassing sourcing, purchasing, and ongoing supplier management
Key Activities	Supplier research, evaluation, negotiation, and selection	Purchase order creation, contract administration, payment processing, quality control, and compliance
Supplier Relationship	Establishes initial supplier relationships	Maintains and manages long-term supplier relationships
Cost Management	Focuses on obtaining competitive pricing and favorable terms with suppliers	Monitors and controls overall procurement spending, aligning with budget and financial goals
Risk Management	Reduces supply risk through diversification and supplier vetting	Manages risks related to compliance, delivery delays, quality, and operational disruption
Timeframe	Typically an early-stage, periodic process (occurs before procurement)	Ongoing process involving frequent and routine purchasing activities
Impact on Operations	Lays the groundwork for sourcing reliable, quality suppliers	Ensures goods and services are acquired in time for seamless operational flow
Role in Strategy	Supports the strategic aspect of finding the right suppliers to meet long-term business needs	Aligns purchasing activities with the company’s overall operational and financial strategy

How technology impacts procurement 

Technology has automated many of the tactical purchasing and sourcing tasks like PO approvals and RFP creation that made Procurement a “cost cutting” function. Now, teams have the bandwidth to focus on identifying and executing strategic opportunities. Because tech has redefined what daily Procurement operations involve, digital transformation has become a foundational strategy for most teams. 

However, technology has also taken many teams even further by giving them visibility into every aspect of the procurement and sourcing process. Now, every improvement opportunity, from simple cost avoidances all the way to complex non-financial sourcing decisions, is discoverable. In just a few years, digital procurement solutions have proven what forward-thinking CPOs have said for years: Procurement has the greatest strategic potential of nearly any business unit.  

How can procurement software help with procurement and sourcing functions? 

Strategic sourcing and Procurement form the backbone of successful business operations. Without them, no company can form a flow of goods, materials, and services that is both reliable and cost effective. With supply chain complexities growing over the past few years , procurement and sourcing play a more important role than ever.  

Now, simply selecting suppliers and managing costs is no longer enough. Procurement must actively contribute to profitability and protect revenue. Procurement software of all kinds has emerged to help the function bolster its strategic capabilities. But to truly rise to the challenge, you must start by understanding your spend and the opportunities it presents.  

SpendHQ makes it easy for any organization to gain a foundation of spend visibility in only a few weeks, no matter how large or spread out the data. We start by using machine learning to consolidate, clean, and categorize 97-99% of your spend without requiring your team to do a single bit of heavy lifting.  

But SpendHQ doesn’t just establish a data foundation. It also gives teams procurement performance management capabilities including pipeline tracking, project management, sourcing execution, and reporting tools that empower them to seamlessly turn opportunities into results.  

We recently conducted a live demo with e-Sourcing partner Market Dojo to demonstrate the entire strategic sourcing flow. We covered opportunity identification, project management, seamless e-sourcing execution, and savings tracking.