When speaking about supply chain management, it can get confusing to understand the difference between product procurement and product sourcing. Product procurement and product sourcing can seem to be the same thing but actually, there are some differences.
Product sourcing is about obtaining or purchasing a product for your supply chain needs. Product procurement is the process that is put in place for the entire product such as sourcing, purchasing, and delivery of the product.
Both product sourcing and product procurement are important parts of the supply chain.
What Is Product Sourcing ?
Product sourcing is the process set in place for you to find someone to manufacture a product you need for your business operation. This could be a finished product or a part you need for manufacturing. Product sourcing is about the processes you set in place for you to find the products you need.
The word source or sourcing is defined as:
In other words, product sourcing is all about finding where you can obtain, manufacture, or purchase a product that you need. It is something that is obtained from a particular source, such as another company.
The sourcing can be local or from overseas. The process for both local and overseas product sourcing would be similar.
How you source your products will depend a lot upon what type of quantity of products you actually need. For example, if you need to purchase 1 million pieces of an item you can probably purchase that directly from a manufacturer. But if you only need 10 pieces of the same item you may need to look to purchase that item from wholesale or even retail.
Your sourcing strategy depends on your actual needs and your ability to sell that item. Most manufacturers want to work with someone who will buy a decent quantity of an item and not just one or two pieces. This is because it could take the manufacturer the same amount of time to manufacture one or two items as it would for them to make 100 or 1000 of the very same item.
To find out more about Product sourcing and potential product sourcing errors, you can read our blog on 6 Common Product Sourcing Errors, What You Need to Know by clicking here.
Many larger companies will have sourcing teams set up within their larger procurement departments. This is because sourcing is a function of being able to procure a product that you need in your supply chain.
What is Product Procurement?
Product procurement is when a vendor delivers the product to you as part of your supply chain. This is considered an end-to-end purchase meaning that everything in the process is taking care of. You order the product and the product is sent to you.
In product procurement you and another party will agree to the terms of purchase for the product and then the product will be delivered to you. The Oxford dictionary defines procurement as:
It can be said that product procurement is the process of collecting all the data and information you need to purchase a product. For example, if you want to purchase a table lamp for your collection, then during the procurement process you will consider aspects of the lamp such as what color of lamp do I want to buy? What size does the lamp need to be? What materials should the lamp be made of? These are all the things you need to decide to make your purchase of the lamp.
Procurement is understanding about the product you are buying while at the same time making the deal about the product you are purchasing, In other words, it is about setting up the buying terms, the buying contract, agreeing to the purchase and clearly understanding exactly what you need to buy and why.
In larger companies purchasing and procurement maybe two different departments. Usually the purchasing department will not purchase an item unless those who are handling procurement have verified that the item can be purchased and have advised who the item should be purchased from.
The procurement department usually has the authority from the business to make the deals for the purchase. This is why many times procurement is a senior-level position and the purchasing function may be more of an administrative position.
Some very large companies may have the procurement function divided up into several team or groups. How they divide it up can and will vary from company to company. But here are some ways it could be divided:
- Category Management Team – This team may look at what is going to be procured. How much can be spent and why? This can also be further divided up into things like direct category or products sold directly into a market or indirect as any product needed to bring the product into the market. Some companies will further separate out things like IT and Information services as they can be a very complicated procurement category.
- Sourcing Team – The sourcing team will be in charge of locating the person or company who will produce the product they are looking for. They are the people who are doing the actual product sourcing.
- Supplier Maintenance Team – The supplier maintenance team will look at the suppliers to make sure they are continuing to produce and perform in a way that is required. They are the follow up team that continues to procure and buy things which have been been purchased before and maintain those supplier relationships.
In larger companies the procurement department may report directly to the top leaders in an organization as the president. For other companies the procurement department may report directly to the chief financial officer or the CFO.
Who the procurement department reports to is not as important as the fact that anyone working in the procurement department must have the ability to be able to work well with many departments within an organization. This is especially true for companies that are very large and have very complicated procurement structures and procurement needs.
If someone is looking a job in the procurement department of a very large company, one of the best things that you can do is to make sure they have the relevant experience for the products they are looking to procure. This is because in sourcing, purchasing and procuring products requires technical or knowledge-base skill that requires the appropriate background.
In smaller companies, the person purchasing and the person procuring a product may be the same person. This is especially true for someone who may be doing a small E commerce site or another type of small business. The person who has procured the item may also be handling all the purchasing.
Product Sourcing Vs Product Procurement
Products sourcing is about finding the product that you want to obtain. Product procurement is the entire process of procuring or obtaining a product. Product sourcing is usually a function that is within the actual product procurement function.
In other words, product procurement is about everything in the supply chain to do with a product such as finding the product or sourcing the product to purchasing the product to having the product be delivered. The product sourcing function in the supply chain is within the actual product procurement. Product sourcing and product procurement are interlinked.
Product sourcing helps you to find the right products. Product procurement helps you have the processes in place to ensure that you can source, purchase and maintain the products in your supply chain. Both are important aspects of your overall supply chain strategy.
What Are Some Reason To Understand the Culture of Your Product Sourcing Country?
It is important to understand the culture of the country you are sourcing and purchasing your products from. Things you can do are: 1) check a map, 2) do your homework about the place you are buying from, 3) show a genuine interest in the country and culture, 4) try to learn a few basic words of the local language, 5) see a few of the cultural sites, 6) be adventurous in trying new foods, 7) ask intelligent questions about the country and 8) find topics of conversation that will reach out across the cultural divide.
To find out more you can read our blog on 8 Tips to Understand the Culture of Your Product Sourcing Country by clicking here.
How Do You Find The Right International Business Partner?
Finding the right international business partner can be very difficult as there can be language, culture, and other barriers. But, there are things that you can do such as ensuring you have the knowledge you need, also doing your due diligence, and finally, trusting the knowledge and experience of your local contacts.
You can find out more by reading our blog 3 Tips to Finding The Right International Business Partner by clicking here.