Complete Guide to Procurement & Strategic Sourcing

A Complete Explanation

The procurement and sourcing processes involve the ways in which goods and services are bought from business suppliers. Many people confuse the terms, or use them interchangeably, but they are not the same.

Procurement is an 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. Sourcing involves actually finding, vetting, negotiating and contracting with suppliers.

Both procurement and sourcing are a part of supply chain management, which involves the entire process of managing products and services purchased from suppliers—the procurement process—along with building the business’s own goods and services, and moving them among different parts of the business and ultimately to end customers.

In this article, we’ll explain:

  • What procurement is, including procurement sourcing
  • How to streamline procurement operations to avoid error and bottlenecks
  • What sourcing is, including how to use business leverage in sourcing to reduce costs
  • A definition of strategic sourcing and source-to-pay (S2P)

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

For 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.

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.

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 procure-to-pay?

Procure-to-pay, (P2P) is a subdivision of the procurement process. Procure-to-pay refers to software or solutions that enable the integration of the purchasing department with the accounts payable department.

Procure-to-pay does not include spend-management, sourcing of the goods, or production planning or forecasting. Procure-to-pay includes only the steps that can be automated with software.

Streamlining procurement operations to avoid error and bottlenecks

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.

Workflow automation software can help standardize the most time-consuming and error-prone steps, such as request creation, and enables a fast and accurate approvals process with rules about who must approve certain types of purchases.

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.

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 a business’ day-to-day 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 risk and improve operational efficiency. A key part of the sourcing process is finding the appropriate balance of these two factors.

Sourcing isn’t just a one-time process that gets handed off to the rest of the procurement department after a contract is signed; it’s an integral and ongoing component of the procurement process.

Using business leverage to reduce costs

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 an 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 source-to-pay (S2P)?

Source-to-pay is the end-to-end process, or set of steps, that manage 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.

Use Pipefy to get control and visibility over your processes

The Pipefy platform offers business process management features to help your finance team optimize its procure-to-pay processes and achieve high-level institutional goals.

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. Reach out today to learn more. Try Pipefy for free today or request a demo to supercharge your finance and procurement operations.