Difference Between Sourcing and Procurement

Many times people are confused between the terms procurement and sourcing thinking them to be the same. They even use these terms interchangeably which is incorrect. There are differences between procurement and sourcing that will be highlighted in this article.

Both sourcing and procurement are similar in meaning to the word purchasing but they are more up scale and mean to obtain goods or services that meet customer’s requirements at the lowest possible cost appropriate with levels of quality and service. However, procurement is something more than just purchasing as it encompasses specifications development, value analysis, supplier market research, negotiation, marketing, buying activities, administration of contract, and control of inventory, traffic, receiving and stores. On the other hand, sourcing is the process of identifying sources that could provide needed products or services that are required by the organization.

For some procurement is a broad term that includes designing, sourcing, processing, negotiating and fixing standards while sourcing refers to fulfilling the commercial aspects of procuring the commodity that is releasing purchase order and then tracking delivery schedules till the time it is brought to the site. Procurement is sourcing goods or services at the lowest possible cost, at the right quality and quantity, at the right time, place and from the right vendor for the use of the organization, generally through a contract. At the simplest of levels, procurement is no more than sourcing. But as the size and complexity of the organization increases, procurement gradually becomes wider and more and more different from simple sourcing.

It is clear then that sourcing is just a subset of a larger process called procurement that includes a lot of activities.