Sourcing and procurement are often used as interchangeable terms, and indeed they are related ideas in supply management. However, they’re not quite the same, and neither are eSourcing and eProcurement. But what exactly are the differences?
Let’s start with their definitions.
Preceding the actual purchase of goods and services, sourcing facilitates the full life cycle of procurement by analyzing how a company spends their money on those assets. This includes identifying and selecting opportunities to reduce spend using knowledge of the external markets and the company’s needs, and negotiating, managing, and monitoring contracts for goods. eSourcing is simply performing most, if not all, of this process electronically, consolidating proposals, quotes, and bids from various suppliers in one central information hub for ease of comparison.
Specifically, sourcing includes tools that facilitate internal (buyer) and external (supplier) communication and the contracting process. All businesses need supplies, and generally spend 50% and sometimes as much as 70% of their budget procuring them. In its most basic definition, eSourcing is locating those goods and, once set up with suppliers, being able to purchase them with pre-negotiated terms and conditions using electronic tools. This is extremely helpful in minimizing maverick spend and realizing budget savings.
The first step in the eSourcing process is identifying the need for goods and services. Various strategies are then implemented to find the suppliers that best meet a company’s needs. A contract is negotiated with the supplier that’s favorable both logistically and financially for the company. It can be signed electronically and, with Contract Lifecycle Management, the company can also oversee supplier compliance and manage risk.
Then there is procurement, which is the transaction and compliance part of purchasing. This includes requisition, authorizing, ordering, receipts, and payments for supplies. eProcurement is the counterpart to eSourcing in that it performs the process electronically and, in the purchasing cycle, it begins when the supplier contract is signed.
Though they are both important parts of the purchasing cycle, there are many differences between eSourcing and eProcurement. It is the spend analysis, supplier selection, and contracts involved in eSourcing that lead into the transactional aspects of eProcurement.
Following eSourcing, eProcurement is the actual purchase of the goods and services from suppliers. It executes on the negotiated contracts created by sourcing, which typically include pricing agreed upon for the goods, perhaps rebates once a quantity is reached, and other stipulations. In eProcurement, the determined payment is managed and processed electronically and there is no negotiation at this phase of the purchasing cycle.
In other words, eSourcing can be used strategically to ensure that the best pricing and value are locked in the contract, while eProcurement is strictly tactical to ensure the optimal flow of goods and services based on the contract.
Though they are different processes, eSourcing and eProcurement are two halves of a whole — both are necessary for efficient, streamlined ordering and to keep costs as low as possible while maintaining excellent relationships with suppliers. For more information on how best to implement eSourcing and eProcurement at your company, feel free to contact us. We can help navigate the evolving needs of companies and guide them through the ever-changing supply management ecosystem.
* Join our webinar with Andrew Bartolini, Ardent Partners Managing Partner and Chief Research Officer, on how a modern “supplier-centric” approach to eSourcing has evolved into a strategic advantage.