What is procurement?
Procurement is the end-to-end process of sourcing and obtaining goods or services needed for ongoing business operations. The procurement process includes many steps, including:
- Identifying vendors
- Negotiating with vendors
- Creating purchase requisitions to get approval to purchase
- Submitting purchase orders
- Receiving deliveries
- Paying suppliers
A procurement process is necessary when a company cannot produce needed items on its own, or when it is more cost-effective to outsource them. Most companies depend on a network of partners and vendors to provide the goods, utilities, and services they need to sustain their businesses.
Procurement example
Manufacturing companies procure raw materials, parts, and equipment from external vendors, while IT firms may source software licenses or additional labor from third parties. At the same time, many companies procure services such as facilities management from external contractors.
Build better finance processes with the Definitive Guide to Workflow Management
What is procurement sourcing?
Procurement sourcing is the process of sourcing a supplier for a good or service during the ongoing procurement process. Once a procurement department sources a vendor and negotiates a contract, the procurement department can then make that vendor available to the other parts of the process. Then, employees may submit purchase requisitions and purchase orders to get the goods and services they need to operate effectively.
What is sourcing?
Sourcing is the initial process of identifying, analyzing, and negotiating with suppliers of goods and services. Typically, the goods and services sold by these suppliers are needed for day-to-day business operations, and the pricing and quality of the goods are critical to operational success.
As part of the broader procurement process, sourcing is an essential part of building and maintaining an effective supply chain. Minimizing prices ensures that costs are kept in control while demanding high-quality goods and services helps to reduce financial risk and improve operational efficiency. A key part of the sourcing process is finding the appropriate balance between these two factors: obtaining high-quality products at a reduced cost.
While sourcing is considered a single process, it isn’t a one-time process that gets handed off to the rest of the procurement department after a deal is negotiated and a contract is signed. Sourcing is an integral and ongoing component of the procurement process. (More on strategic sourcing in a bit).
Why you should leverage buying power throughout the sourcing process
A key part of the sourcing process is negotiating with suppliers to reduce costs while maintaining quality. Large businesses leverage their buying power in order to receive competitive bulk pricing on purchase orders. However, even small and medium-sized businesses can negotiate good deals. Long-term contracts and order minimums are two examples of levers that can be used to reduce costs.
What is strategic sourcing?
Strategic sourcing takes the concept of sourcing and turns it into iterative and ongoing business practice. Strategic sourcing is a continuous process, in which a business regularly analyzes its vendors and supply chain, identifies new suppliers, and reallocates resources.
The goal of strategic sourcing is to adjust to shifting market dynamics to minimize risk and costs, and ensure that the supply chain is always as efficient as possible.
What is the difference between sourcing and procurement?
The procurement and sourcing processes involve the ways in which goods and services are bought from business suppliers. While these terms are usually confused or used interchangeably, they are not the same. Here’s how they differ:
| Process | Definition | Similarities | Differences |
|---|---|---|---|
| Procurement | End-to-end process that includes sourcing, managing the internal workflows for submitting purchase requisitions, creating and sending purchase orders, and managing deliveries and payments | – Part of supply chain management – Involves the entire process of managing products and services purchased from suppliers | – Goods or services obtained needed for ongoing business operations – Items procured during the sourcing process flow through different parts of a business and ultimately to end customers |
| Sourcing | Process that involves actually finding, vetting, negotiating, and contracting with suppliers | – Part of supply chain management – Involves the entire process of managing products and services purchased from suppliers | – Goods and services obtained needed for day-to-day business operations – Process primarily deals with identifying, analyzing, and negotiating with suppliers of goods and services |
Related procurement and sourcing topics
What is procure-to-pay (P2P)?
Procure-to-pay refers to software or solutions that enable the integration of the purchasing department with the accounts payable department. Procure-to-pay, (P2P) is a subdivision of the procurement process.
Procure-to-pay includes only the steps that can be automated with software, such as invoicing and making payments. Procure-to-pay does not include spend management, sourcing of the goods, or production planning or forecasting.
What is source-to-pay (S2P)?
Source-to-pay is the end-to-end process (or set of steps) that manages the whole procurement process — from spend management to original sourcing to vendor management to purchasing to paying the supplier upon delivery. It often involves software to automate the repetitive parts of the workflows — such as tracking and approvals — to ensure quality and efficiency.
Benefits of streamlining procurement operations
Using software to automate parts of the procurement process will ensure consistency, efficiency, and cost-effectiveness. It also is a scalable solution that can enable the procurement department to manage large operations without having to increase staff to handle all the moving parts. Leveraging software, like a low-code business process automation platform, can help teams avoid errors and bottlenecks.
Reduced errors due to manual data entry and process management
Workflow automation software can help standardize the most time-consuming and error-prone steps, like request creation, and enables a fast and accurate approvals process with rules about who must approve certain types of purchases.
Gain visibility into process bottlenecks with audit trails and centralized data
Further, automated procurement software helps to centralize all of the information about ongoing and historical procurement processes so that employees don’t waste time scrounging through documents or emails to understand the state of a project. This also helps to ensure that information is not lost and steps are not forgotten.
Use low-code automation for more control and visibility
Pipefy’s low-code automation platform offers process management features to help your finance team optimize any type of business process.
Pipefy’s automated workflows can handle repetitive, time-consuming tasks, and help teams communicate effectively. When you need to take control of your finance department and procure-to-pay process with the big picture in mind, Pipefy is the perfect partner.
