Sourcing vs procurement: What’s the difference?

Most successful business leaders agree that a company’s most important asset is its people. Employees are what drives value in the company through their ideas, labor, interactions with customers, and more. But alongside people are the tools, technology, and services they use to perform their work.

Every day, employees rely on office supplies, software, and trusted vendors to help them complete important tasks, create products, provide services, and otherwise keep the company moving forward. Making these goods and services available to employees is called sourcing — or is it procurement? The two terms are closely related, but they’re not interchangeable.

To help explain why, we talked with procurement expert and educator Denise Williams of Procurement Queen. Williams has over 18 years of experience as a leader of procurement teams across industries and at companies with an annual spend of over $2 billion. Check out her insights about the sourcing vs procurement breakdown below.

Sourcing vs procurement

What is procurement?

Procurement is the comprehensive process of identifying, qualifying, and acquiring the goods and services a company needs to operate effectively. Key areas typically included in procurement include purchase planning, price negotiation, ordering, and vendor management.

What is sourcing?

Sourcing is the simple process of acquiring the goods and services a company or team needs to accomplish specific tasks. This process tends to be suited for purchases that happen just once, and it typically involves little to no price negotiation or vendor management.

How does sourcing differ from procurement?

According to Williams, there are a few key distinctions between sourcing and procurement:

  • Depth: Sourcing tends to be transactional in nature, while procurement is strategic.
  • Scale: You can handle sourcing in just a few steps, while procurement is complex and often requires input and approval from multiple stakeholders.
  • Cost: Sourcing usually deals with low-cost items, while procurement addresses more expensive purchases.
  • Impact: Sourcing typically has little to no impact on the bottom line or company culture, while procurement can have a significant impact on these and other critical organizational elements.
  • Timeline: Sourcing often deals with a short-term task, while procurement covers purchases that involve an extended time frame between identifying a need and making an actual purchase.

Williams says the combination of the above aspects can help determine whether your organization needs a sourcing process or a procurement process. For example, buying a stapler should only require a minimal sourcing process, as this activity is transactional in nature, simple to accomplish, and inexpensive. It also has no impact on the organization as a whole (or even a department), and doesn’t take much time to complete.

In contrast, planning a company-wide party for a 500-person workforce requires some strategic planning, has a complex set of steps, will be costly, could significantly impact the bottom line and company culture, and will take time to coordinate vendors and make purchases. This scenario would lend itself more to a formal procurement process.

Can sourcing and procurement happen in the same organization?

While larger organizations often have entire procurement departments in place, sourcing can still occur in work environments with formal procurement processes. For example, Williams says such organizations typically have established a monetary threshold for purchases, and any that go over that must go through an approval process. The exact cutoff can differ greatly — some organizations may limit one-time purchases to $500, while others may allow up to $40,000.

Thresholds may also differ across product and service types. For example, office supplies may have a lower threshold than janitorial services — the latter will likely require some form of vendor bidding, which warrants a higher threshold. This cutoff difference could allow, say, an employee to hire a company for a one-time cleaning job at the office.

“Whatever your threshold breakdown, it’s important to train your workforce on your procurement processes so they don’t waste time or resources or negatively impact your bottom line with unchecked spending,” Williams explains.

Sourcing vs procurement: 4 examples

1. Supplies

Companies keep their offices stocked with supplies like pens, printer paper, sticky notes, paper clips, folders, and the like. For smaller companies, it’s often enough to simply have the office manager or an administrative assistant keep track of supplies and order more as necessary — or even have employees buy what’s needed and expense it later. This small-scale scenario constitutes sourcing.

Taking this approach at a larger corporation that needs to supply multiple departments across a number of office locations would not only be a time-consuming process, but it would also be costly. Buying a single ream of paper is negligible on the books; 5,000 reams is a different story. Do the same math across the entire list of supplies, and you’ll quickly see why any savvy business leader would want to ensure their company was getting a good deal when ordering such large quantities of supplies throughout the year. Enter the need for procurement.

2. Software

Consider a 50-person company that’s trying to make their workflows more efficient. The CEO decides that implementing a project management solution would help achieve this goal. Even at this size, sourcing is still likely to be acceptable. The operations manager can find a few affordable solutions in a day or two, try each one out, make the purchase, and then onboard the team.

Now take a company with multiple lines of business that wants to gain efficiencies across every functional area with an enterprise resource planning (ERP) system. The cost of such software alone is exponentially higher than a simple project management solution; it also would require a ton of planning to ensure the system meets the needs of key stakeholders and addresses all mission-critical use cases.

“In addition, rolling out an ERP is a strategic concern,” says Williams. “Multiple functions must weigh in. The solution needs to be able to integrate with core systems already in place. You must consider change management and user training. Procurement is an absolute necessity in this scenario.”

3. Insurance

Since small businesses with fewer than 50 employees aren’t required to provide health insurance, the question of sourcing vs procurement for insurance likely won’t even apply at these companies. However, even if a small business chooses to offer insurance, it’s likely something the owner or a designee would handle with a relatively simple, informal process.

Still, insurance can be expensive and quite the differentiator when it comes to attracting and retaining talent. So even a small business may formalize the process of procuring insurance to ensure they’re securing the best option for their employees — within a reasonable budget — that ideally will remain the best option as the company grows.

4. Vendors

As noted previously, vendor management is often a key area of procurement. Companies often have to look externally for products and services to support operations or address ancillary needs. In most cases, vendor management doesn’t come into play with sourcing because of the latter’s transactional nature. But procurement is strategic — you not only have to identify the right vendors through vetting, but you also have to manage relationships with them over time.

For example, a manufacturing firm may need to find a supplier for certain components to build products. It would be inefficient to identify a new supplier each time workers do a production run. So the firm would establish a formal procurement process to find one or more suitable suppliers, negotiate prices and terms, make purchases, and reorder from those suppliers on a regular basis to ensure smooth operations and consistent costs.

Efficient sourcing or procurement with Jotform

Jotform is a powerful online form builder that enables your organization to make sourcing even simpler and automate the more tedious tasks entailed in lengthy procurement processes. You can build customizable online forms and workflows and eliminate inefficient emails and meetings. From purchase requests to requests for pricing, Jotform has the templates to address your procurement needs.

Keep reading for a selection of templates you can start with today.

Vendor assessment forms

Want to add a new supplier to your supply chain or approved vendor list? Register and assess them first using these templates:

Inventory forms

Need a way to keep track of all the items you’re procuring? Check out these inventory forms:

Legal forms

Every key deal needs to be in writing. To help cover your company legally, start with one of these contractual forms:

Jotform has the right templates to ensure you and your team maximize efficiency with sourcing and procurement. Try one today.

Photo by Agencia INNN on Unsplash

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