According to Kearney, just two years ago, 30% of a service company’s revenue and at least 50% of a manufacturing company’s revenue was designated to procurement. And a recent sourcing and procurement report by SpendEdge highlighted forecasts for $16 billion growth in order fulfillment services by 2024.
Many wrongfully think that sourcing and procurement are synonymous. On the contrary, while both play critical roles in an organization’s supply chain, they differ substantially. However, given their high price tag and industry forecasts for growth, they are very rapidly evolving separately and collaboratively.
Sourcing and Procurement
The sourcing professional is entrusted with the strategy, research, and establishment of quality metrics. Sourcing involves all actions related to identifying and engaging the best suppliers possible for goods and services, including vetting, selecting and hiring, and managing suppliers for optimal price/quality and performing supplier risk analysis.
Continual evaluation and analysis of the supply market and negotiation of purchase terms and conditions also fall under sourcing. It is an essential job of sourcing, for example, to negotiate pricing based on volume purchases. Strategic sourcing, especially in challenging times, avoids problems, mitigates disruption, and promotes supply chain and economic stability. Sourcing enables procurement.
Procurement is the next layer. It is the step after sourcing. The procurement professional embraces placing orders with suppliers, order confirmation, making payments, and ensuring correct and timely delivery of the ordered product/service. Procurement leverages existing supply chains to ensure a consistent flow of supplies to the organization.
Where the Two Meet
The combination of strategic sourcing and procurement ensures supply stability, risk mitigation, sustainability over time, and security based on collaboration. The two functions, when working together, also optimize costs—while sourcing teams maintain and analyze data generated, procurement uses this data provided by sourcing to buy products within budget. In addition, data generated by procurement regarding vendors enables sourcing to monitor competence.
After the process cycle is complete, the data generated by the procurement team is delivered to the sourcing team to manage supplier relationships better. This includes judging supplier performance over time and making strategic decisions on continuing or discontinuing relationships with each vendor.
Automation provides access to data across the business and supplier base and ensures that sourcing can be scaled to minimize lags and delays. In addition, a collaboration between procurement and sourcing provides uninterrupted supply in the near term and effective long-range planning.
Comprehensive sourcing/procurement software is rapidly gaining traction. Features of such programs include:
- Vendors/suppliers database with rankings and ratings
- Automated RFQs
- Collaborative data access
- Security checks
- Purchase requisition generation and management
- Purchase order and contract generation and management
- Cross-referenced database storage
- Transactional procure-to-pay processes
Technology and automation facilitate effective collaboration between sourcing and procurement departments to collate data and analytics and provide all stakeholders access to the pooled results. In addition, automation improves supplier relationships, supports informed decision-making, and enables strategies and conditions that maximize value.
The benefits are innumerable. Neither sourcing nor procurement can work effectively without shared data. It’s the combination of strategic sourcing and procurement, plus plugging in technology to manage and access it all, that dramatically improves the effectiveness.
As We Advance
As economies eventually recover, sourcing and procurement will continue to adapt and strengthen, especially where supply-chain networks are particularly complex. What is apparent is that the depth of data has changed recently. For example, there is a wealth of information now on next-tier suppliers that were unavailable pre-pandemic. Planning has also gained depth as it is now recognized that global supply chains may be here today and inaccessible tomorrow.
Businesses will increasingly consider and adopt the supply chain as a service. In this case, AI-powered, cloud-based automated procurement analytics solutions that combine many data sources will be bought as Software-as-a-Service. In addition, AI/ML use will increase throughout the supply chain, and intelligent bots will perform menial tasks without involvement from their human counterparts.
Greater agility will help organizations be agile enough for tomorrow’s challenges. Virtual training methods and gamified digital tools are part of engaging experienced workers and developing their value. In addition, technology and automation will hasten supply execution speed and enable greater competitiveness.