Procurement is, without a doubt, an umbrella term. For those in the industry, procurement is tossed around as a placeholder, of sorts, that’s come to represent numerous functions in the procurement process.
Two such functions are sourcing and purchasing – both are critical pieces to any effective procurement process, and worthy of distinct definitions.
Of course, both sourcing and purchasing are related – two points along the same chain. And that’s how I’d like to illustrate these two concepts, as stops along a continuum.
Let’s begin with sourcing, which, frankly, is the more involved and nuanced concept. Sourcing encompasses numerous facets, including stalwarts such as pricing and the delivery methods and timing of suppliers.
But growing in importance are the ethical practices employed by suppliers. The popular term in the industry is “sustainable supply chain.” In simple terms, when sourcing suppliers for a given product, it is imperative to understand how they do business. For example, what are their labour standards? What is their environmental record?
These questions, and others, are important not just for the reputation of the supplier, but for your business as well. If the buying public, for instance, learns that you buy your product (or source raw materials) from a supplier with negative labour practices (child labour being the most obvious) that may affect your bottom line.
Consulting giant PWC breaks down the “sustainability” theme into four distinct parts:
- Environmental practices: a suppliers’ “impact on living and non-living natural systems, including ecosystems, natural resources, land air and water.”
- Social practices: the “effect [on] employees, customers and communities, including labor practices, human rights, health, education, livelihood and empowerment.”
- Economic practices: the “impact [on] the economic conditions of the company’s stakeholders and the economic systems at local, national and global levels.”
- Ethical practices: “as they relate to applicable laws, regulations and moral systems.”
Again, according to PWC, each of these distinct parts must be a consideration when one is engaged in the process of sourcing goods. By making sure a supplier’s record is impeccable in each of these areas you can “manage reputational risk, reduce cost, improve quality and continuity of supply and increase revenue.”
Sounds good, doesn’t it?
Once you’ve chosen a supplier, then it becomes time to purchase. In comparison to sourcing, purchasing is pretty simple concept because, really, it involves the act of buying or paying for the good or materials in question. Of course, there are different ways to purchase (purchase orders, credit cards etc.) At Procurify, we, of course, recommend using software to facilitate that function and we recommend using purchase orders.
We’ve written extensively on purchasing best practices here.
But much of the work is done at sourcing – you’ve evaluated the “sustainability” credentials of your supplier and, of course, negotiated the price and determined a delivery method and schedule.