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What Procurement & Sourcing Mean for Your Business | Avetta

Author: Avetta Marketing

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Procurement & Sourcing: Their Meanings and Purpose   

There are many significant challenges facing procurement managers. You have to find suppliers, qualify them, manage the relationships, and evaluate their performance. Never mind that this all must be done under the ever-present mandate to lower costs. 

To best accomplish these tasks, it can help to have a firm understanding of both procurement and sourcing, along with the different types that can be used. This helps you see how they affect your business and how you can strategize about both sourcing and procurement to get the most out of each.

Procurement Defined

Procurement is the end-to-end process of finding suppliers and gathering all the materials from them that you need for your products and services. If procurement doesn’t happen, you won’t have the raw elements in place for manufacturing what you sell in your business. 


The steps of procurement include every detail that pertains to inventory:


  • Sourcing

  • Ordering

  • Purchasing

  • Receiving

  • Invoicing

  • Handling 

  • Record keeping

 

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Sourcing Defined 

Sourcing is the first step in the procurement process. It deals with initiating supplier relationships, which includes finding and qualifying affordable suppliers that produce quality materials. Notice that high quality alone isn’t the only determining factor, because there must be a balance between the quality of raw materials and the costs. 


The steps in the sourcing process include:


  • Assessing purchasing needs

  • Mapping out a plan

  • Conducting market research

  • Gathering vendor information

  • Requesting quotes

  • Negotiating contracts

  • Updating pricing

  • Determining lead time

 

The Types of Sourcing

There are various types of procurement sourcing approaches you can take to accommodate your needs. There is no one correct approach. Environments and boundaries change regularly so you may find yourself switching between them, or even using multiple approaches at once. 


Here’s an overview of 5 types of sourcing:


  1. Co-Sourcing: When a long-term, one-on-one partner would best fit your needs, co-sourcing offers a good collaborative option. Both parties form an interdependent relationship in which you can each achieve a substantial level of success through operational and managerial integration. In this method, partners should retain less risk, receive great value, and attain competitive advantage. Unfortunately, achieving these benefits takes a lot of time, requires higher costs, and reduces business agility.

  2. Crowdsourcing: If you decide to outsource tasks that were previously performed in-house, you can overcome your own limitations of knowledge or experience. Taking advantage of collective learning and labor capacity from numerous contract workers allows for tasks to be completed on demand. This method is fast, easy, low-cost, flexible, and competitive. However, this method also makes it difficult to maintain quality standards and exposes you to liability.

  3. Solution Sourcing: When you need a solution for a technical, complex activity for which an answer is unknown, solution sourcing solicits multiple independent service providers to supply technical advice. The advantage is that you tap into the best resources for addressing complex challenges. It is also fast, gives diverse solutions, spurs innovation, and doesn’t cost a lot to initiate. The downsides are that you lose some control, the offered solutions may not fit your real needs, and the end cost may be unknown.

  4. Network Sourcing: To access new expertise and resources, network sourcing taps into three types of alliances, forming purchasing networks, service provider networks, or combinations of these. Any of these solutions can provide flexibility and organizational agility. Unfortunately, these interactions can be complex to manage and foster dependency. 

  5. Mesh Sourcing: For a very specialized, integrated environment, meshing operations across several interdependent organizations, industries, and markets can connect mutual interests. Profit, values, and social change are hallmarks of this highly collaborative approach, along with efficiency, innovation, and sustainability. But it can also lead to a loss of control and responsiveness.  

 

How Procurement and Sourcing Affect Your Business

Sourcing in procurement and supply chains can improve your business to a very high degree, especially as the global marketplace is changing rapidly. 

First, the procurement sourcing process can lead to ever greater efficiencies, ensuring timely (and trackable) delivery of products and services. Second, quality can be improved through proper alignment with vendors and their own processes. Third, it allows your organization to procure items, services, and contracts at better prices. Having these three major pieces in place means your organization is then free to pursue innovation to gain a competitive edge with price, quality, and convenience. 

Other ways that great procurement and sourcing can affect your business include improved supplier relationships, inventory, globalization, risk avoidance, and sustainability. Procurement shouldn’t be taken lightly.


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How to Strategize for Improved Sourcing and Procurement

If you’re going to gain the positive effects of sourcing and procurement, you must strategize. Here are three elements you need in your strategic procurement plan.

1. Qualified Suppliers

For your plan to work, you must start at the beginning. Sourcing qualified and available suppliers is the basis for everything else procurement does. There are two key steps in this part of the process:


  1. Supplier Prequalification: Collect documentation, verify the data, and manage compliance.

  2. Supplier Quality Audits: Identify gaps between expected and actual performance, complete risk profiles, and manage risks.  

 

2. Procurement Services

The procurement services that must be managed include:


  • Having quick access to supplier information, enabling easy onboarding of new and existing suppliers, and getting a consistent and accurate view of your supply chain

  • Integrating software that handles your supplier prequalification and quality audits with all your other software to empower faster and better decisions

 

3. Supply Chain Management Technology

Using technology in the form of supply chain management software is an effective way to help tackle the many complicated and time-consuming tasks of procurement and sourcing. 


Some key advantages of doing so are:


  • Minimized risk

  • Reduced lead time 

  • Increased visibility

  • Maximized data quality

 

Conclusion

Sourcing for procurement in supply chains is a monumental task that seems to be growing by the day. To tackle it, take advantage of the variety of different sourcing methods available, if you run into a sourcing bottleneck that calls for it. 

Make a strategic procurement plan that involves qualifying suppliers, managing audits, and utilizing the right technology. In the end, you’ll find your business is in a much better position to compete on a global scale.

To learn about how Avetta helps procurement teams find qualified suppliers, visit our website, call 844-633-3801, or email blog@avetta.com.

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