Sourcing and Procurement: Everything You Need to Know 

While the procurement process and sourcing strategy typically live under the same function, they occupy different parts of the purchasing journey. Procurement is the process of purchasing goods while sourcing is the process of identifying and negotiating with suppliers.

In this blog, we’ll explore sourcing vs. procurement to better understand the responsibilities of each and how your team can build best-in-class processes to keep your organization supplied, efficient, and driving measurable cost savings.

What is the difference between sourcing and procurement? 

Sourcing is the process of selecting suppliers and building a resilient, regulatory-compliant supply chain. Procurement is the process of managing the acquisition of goods and services. Both processes typically live under a unified procurement function, though they can be divided into direct procurement and indirect procurement.

• Sourcing focuses on supplier identification, supplier evaluation, and supplier selection to ensure suitable suppliers meet organizational needs, aligning with a long-term sourcing strategy and strategic sourcing process.
• Procurement encompasses the end-to-end procurement process—from the purchasing process and contract management to supplier relationship management and supplier performance monitoring.
• A strong procurement team works closely with the sourcing department to build strong supplier relationships, manage procurement costs, and make informed procurement decisions that strengthen supply chain management.
• Effective procurement and sourcing activities support supplier collaboration and optimize the supplier base, enhancing supplier capabilities and ensuring the procurement operation delivers measurable value.
• Procurement leaders and sourcing teams coordinate to maintain a balanced procurement cycle, addressing both direct procurement needs and broader supply management goals in a global sourcing environment.

Importance of sourcing and procurement 

The procurement organization is one of the most important business units, and it’s becoming more important every year as new regulations and supply chain realities require the function to expand its focus beyond simple cost reductions.

• Sourcing plays a critical role in supplier identification, supplier evaluation, and supplier selection, ensuring a resilient supplier base and strong supplier relationships through a strategic sourcing process.
• Procurement extends beyond the purchasing process to include contract management, supplier relationship management, and vendor management, enabling procurement teams to deliver effective procurement outcomes and reduce procurement costs.
• Together, the sourcing department and procurement team drive supply chain management excellence, helping procurement leaders make informed procurement decisions, strengthen supplier collaboration, and build long-term supplier capabilities.

Why is sourcing important? 

Choosing the right suppliers for materials, goods, and services is crucial to keeping a company running. For starters, sourcing is the foundation of a strong supply chain, which is the foundation of a reliable, efficient company. Sourcing keeps production in every business unit moving.

Sourcing also keeps costs under control by selecting vendors and negotiating per unit pricing. This is especially true in category-specific sourcing, where purchasing professionals use market-specific knowledge to navigate challenges and business unit needs. Finally, sourcing helps manage supply chain risk by vetting suppliers and contributes to ESG programs by identifying diverse and environmentally friendly suppliers.

Why is procurement important? 

Procurement is equally important because it holds all those strategic advancements together. A quality procurement organization builds processes that streamline purchases, control spending, and identify sourcing issues before they become problems.

Procurement also helps manage the tactical side of supplier engagement, like quality assurance and delivery consistency. Finally, procurement locks down the savings that strategic sourcing works to set up. By controlling purchasing channels and monitoring for maverick spend and tail spend, Procurement helps the organization decrease savings leakage so forecasts and budgets stay on track.

Learn More: See how procurement Performance Management solutions help teams streamline strategic projects and increase the function’s organizational value.

What are the key differences between sourcing and procurement? 

How technology impacts procurement 

Technology has automated many of the tactical purchasing and sourcing tasks like PO approvals and RFP creation that made procurement a “cost cutting” function. Now, teams have the bandwidth to focus on identifying and executing strategic opportunities. Because tech has redefined what daily procurement operations involve, digital transformation to unlock digital maturity has become a foundational strategy for most teams.

Driving Efficiency and Cost Savings Through Procurement Technology

• Digital procurement solutions have transformed the procurement process and spend management by automating tactical sourcing activities such as purchase order approvals, RFP creation, and vendor management—freeing procurement teams to focus on strategic sourcing processes and long-term procurement strategy.
• Technology provides full visibility into supplier management, supplier performance, and overall spend management, enabling procurement leaders and sourcing teams to identify suitable suppliers, evaluate supplier capabilities, and strengthen supplier relationships across the procurement cycle.
• Digital transformation in supply chain management and spend management empowers procurement professionals to uncover cost savings, improve supplier collaboration, and make more informed procurement decisions that enhance overall procurement operations.

However, technology has also taken many teams even further by giving them visibility into every aspect of the procurement and sourcing process. Now, every improvement opportunity, from simple cost avoidances all the way to complex non-financial sourcing decisions, is discoverable. In just a few years, digital procurement solutions have proven what forward-thinking CPOs have said for years: procurement has the greatest strategic potential of nearly any business unit.

How can procurement software help with procurement and sourcing functions? 

Strategic sourcing and procurement form the backbone of successful business operations. Without them, no company can form a flow of goods, materials, and services that is both reliable and cost effective. With supply chain complexities growing over the past few years, procurement and sourcing play a more important role than ever.

Now, simply selecting suppliers and managing costs is no longer enough. Procurement must actively contribute to profitability and protect revenue. Procurement software of all kinds has emerged to help the function bolster its strategic capabilities. But to truly rise to the challenge, you must start by understanding your spend and the opportunities it presents. 

SpendHQ makes it easy for any organization to gain a foundation of spend visibility in only a few weeks, no matter how large or spread out the data. We start by using AI-powered spend analytics to consolidate, clean, and categorize up to 99% of your spend without requiring your team to do a single bit of heavy lifting.

But SpendHQ doesn’t just establish a data foundation. It also gives teams procurement performance management capabilities including pipeline tracking, project management, sourcing execution, and reporting tools that empower them to seamlessly turn opportunities into results.

We recently conducted a live demo with e-Sourcing partner Market Dojo to demonstrate the entire strategic sourcing flow. We covered opportunity identification, project management, seamless e-sourcing execution, and savings tracking.