Sourcing and Procurement in Supply Chain Management
The terms “sourcing” and “procurement” in supply chain management are often used interchangeably, although they are not quite the same. Procurement is a process and one link in the chain of the supply chain. The supply chain is the entire process of making and selling a commercial product or good.
Procurement is one step in that process. It refers to the entire process of sourcing and contracting with suppliers to gather all of the services and goods you need to make that final product. Procurement involves finding the suppliers, signing contracts, placing purchase orders, receiving the goods, and evaluating the experience after receiving the goods. Sourcing is but one step in the procurement process. So, as procurement is but one link in the supply chain, sourcing is but one step in the procurement chain.
Sourcing refers to finding and vetting suppliers and vendors, and ultimately choosing one that fits your company’s needs. Through procurement management tools, such as eSourcing software, this process is made much easier than it has been in the past, with the ability to vet many different suppliers at once, leading to a more informed decision and often with lower costs.
What Is Procurement Management?
Procurement management refers to the management of the entire procurement process. So then, what does a procurement process look like from start to finish? A generalized sourcing and procurement in the supply chain management process may look something like:
- Recognizing need. As you plan to manufacture, you realize that you need a product or good to make the product.
- Purchase requisition. A purchase requisition is sent to the purchasing (procurement) department.
- Request review. The purchasing department reviews the request and deems if it is viable or not. If it is doable, the procurement process moves forward, and the request becomes a purchase order (PO), which is then sent to the accounting department.
- Budget approval. The accounting department then has to review the PO. If it is approved, the procurement process moves forward.
- RFQ processes. If the PO is approved, the procurement team sends out several requests for quotation (RFQ) requests to vendors, asking how much it will cost for said product.
- Negotiation and contracts. After negotiations, a vendor is ultimately chosen and a contract is signed.
- Receiving goods. Goods are received (hopefully) within the designated timeline per the contract.
- Review. After goods are received, the purchasing department checks the POs, packaging slips, and vendor invoices and makes sure everything is accurate before payment is submitted.
- Payment. The payment is then submitted to the vendor.
Keep in mind this is a generalized way of how sourcing and procurement work in supply chain management work. Every company is different, and when you use the best procurement software, this long, drawn-out process can be simplified into just a few days or hours rather than weeks.
Sourcing and Procurement in Supply Chain Management: Finding the Right Tools
If you’re finding the process of sourcing and procurement in supply chain management a bit stressful, you may want to look for better procurement management tools that can help. eSourcing and eAuction software can be a great help, particularly with the sourcing process.
These types of tools allow you to build a stronger relationship with your vendors, allow you to manage risk (especially with contracts) more easily, and give you the ability to be more transparent. With procurement software tools, you can also talk with other departments (such as manufacturing and accounting) more easily, so that everyone is on the same page.
To find out more about how to make sourcing and procurement in supply chain management work more seamlessly, or to schedule a demo, contact us today at EC Sourcing Group by calling 973-936-9672.