Have you ever wondered what the difference between sourcing and procurement is? You’re not alone. While there are key differences between the two, there are some commonalities. Sourcing and procurement are valuable practices for saving money, supporting supply chain management, and ensuring a competitive advantage when buying software. Defining your sourcing and procurement processes correctly will help you build a more robust software buying practice. In this blog we explore the key differences between sourcing and procurement and offer advice on creating efficient policies that offer more cost savings and better outcomes.
Sourcing Versus Procurement
At a high level, sourcing is about finding appropriate suppliers for business needs. Procurement encompasses the remainder of the purchasing process. There is often a fair bit of overlap between these two functions. In many businesses, a single team may handle both duties. There are, however, three key differences between sourcing and procurement:
What is Strategic Software Sourcing?
Sourcing is all about looking for suitable vendors, including activities like:
- Scouting
- Vetting
- Assessing
- Selecting and
- Managing suppliers
High-quality sourcing requires a lot of research, as well as a clear definition of sourcing strategy, quality and quantity metrics, and vendor expectations.
Strategic software sourcing streamlines SaaS buying to take advantage of optimal pricing and payment terms. This is achieved by developing a list of preferred suppliers to build strong, long-term vendor relationships. You’ll reduce the number of suppliers you work with and leverage volume pricing and advantageous terms on your software purchases.
What is Software Procurement?
Software procurement is the overarching process of buying software for your company. The procurement management function encompasses sourcing, purchasing, and paying for the software you need. While sourcing activities are an important part of the process, sourcing is a subset of procurement.
Why the Software Procurement Process Relies on Strategic Sourcing
Procurement professionals know that strategic sourcing is the key to improving profit margin, reducing lead time, and ensuring strong supplier relationships.
Using strategic sourcing, the procurement department can:
- Reduce costs to buy SaaS software
- Improve negotiating leverage and contract terms
- Mitigate supplier risk by giving preference to known vendors
- Reduce time spent evaluating and negotiating deals
- Improve accounts payable and procure-to-pay functions
Avoid These Critical Software Sourcing and Procurement Mistakes
Building a strong software procurement strategy can also help you avoid some of the pitfalls of SaaS buying. Here are three of the most common issues stakeholders encounter when buying a new piece of software:
- Buying the first tool that comes along – Software is an expensive and complex investment, and it deserves a healthy level of market research and due diligence. Commit to the “three bids and a buy” philosophy of SaaS buying – Review multiple RFQ responses to get the best solution and maximize your cost savings.
- Negotiating without approval/budget – A procurement process should lead to success from the purchase order to the closing table. Unless you have interdepartmental and finance team approval for a purchase, negotiating for software may be a fruitless endeavor.
- Ignoring contract dealbreakers – Contract terms present some sticky areas in buying software. Even if you’ve worked with a supplier in the past or they come with an enthusiastic recommendation, every contract requires careful consideration. Vetting the particulars of your pricing and contract terms can mean avoiding costly mistakes or friction with your supplier down the road.
How SCS Can Help
Sourcing and procurement professionals in large organizations manage and assess hundreds of potential suppliers, contracts, and procurement needs across any given month. SCS can help you administer the software buying lifecycle and optimize the administration of your contract and supplier management process. We are a trusted adviser to many of the world’s leading organizations allowing you to use as much or as little of our capabilities as you need. Contact us today!