No matter what type of enterprise you're running, there's one common denominator: the need for goods and services to produce the end product. To maximize profitability and ensure transparency in their procurement system, most businesses seek to secure the best deals from their suppliers, effectively managing purchasing costs
Nonetheless, the terms sourcing and procurement can be confusing to many business owners, and understanding the differences between esourcing and eprocurement can be particularly challenging.
In this article, we aim to clear up the confusion and highlight the similarities and differences between the two terms. We'll also explain how these practices complement each other to ensure that your company acquires the necessary goods and services on favorable contract terms.
Procurement: Acquiring Goods and Services From a Vendor
In a nutshell, procurement is buying or making a contract for goods and services. This could mean raw materials for your manufacturing department, copy paper for accounting, or software for your sales team. To achieve your company’s goals, the procurement team will help support supply chain management through timely orders from each supplier. At the same time, they’ll process each purchase requisition through the approval and purchase order process, track assets through the supply chain, and ensure regulatory compliance.
But how does the procurement department manage all those moving parts? In many ways, procurement is just like your factory floor: bits and pieces are everywhere. This includes vendor contracts, enterprise resource planning, payment approvals, and much more. Each procurement manager must complete many tasks to keep your supply chain consistent. Typically, they’ll use procurement software to keep track of everything-just like you use supply bins at the factory to keep everything organized.
Sourcing: Which Goods Can You Obtain From Which Vendor? What Is The Price and Contract Terms?
Try and think about strategic sourcing this way. When you want to buy yourself a new computer, the procurement process typically starts with a little research. First, you’ll want to know the best specifications for your needs. Then, you’ll look at available models while considering your budget. Once you’ve narrowed down your possibilities, you’ll likely look at reviews to determine a first and second choice. Finally, you’ll determine which supplier has the best contract terms, such as a promotional price or discounted software.
Of course, your procurement department will do this process for a much wider variety of goods. Just as you pick the best paper towels at the store, they’ll find the supplier that provides adequate paper products at the best price. At the same time, though, they’ll have to ensure compliance with any regulations that affect your purchasing.
That’s why, in most cases, medium and large companies will use some form of esourcing software. These powerful tools help ease the electronic procurement process by letting your procurement manager see what’s available, from which supplier, and at which contract terms. They can even monitor compliance issues with each vendor, all without leaving their desk.
With These Definitions In Mind, What’s eProcurement?
Simply put, electronic procurement is the modernization of procurement at large. In our parent’s generation, procurement operations were largely manual and paper-based. Purchasers would request some goods through a purchase requisition, and then a manual purchasing process would follow. Usually, the procurement team would find the right item, then issue a purchase order to the selected supplier. Or, they’d place an order through an approved vendor for a common item.
As you can imagine, procurement was quite cumbersome during the bad old days. And for startup companies that don’t have an e procurement system, there’s a lot of paperwork. This is especially acute for hardware-heavy startups, because the more moving parts there are, the easier it is for something to fall through the cracks. On the other hand, supply chain management is much easier with eprocurement software.
But, what IS eprocurement? Simply put, it’s the procurement process for the 21st century. Unlike traditional procurement processes, most things are done in a single computer program that’s connected to the internet. For instance, in electronic procurement your managers will request something from the purchasing team. Then, they will complete the approval process and other purchasing tasks to ensure the goods you receive from a supplier are the right item for the right price.
What’s the best part? With an adequate procurement automation process, there’s relatively little guesswork. You will rarely need to send out purchasers to your supplier, unless you are looking for something expensive. In turn, you’ll have large chunks of supply chain information in one place, along with the vendor bills. This means that, if there’s a problem with one supplier, it’ll be easier to find alternatives for
enterprise resource planning.
Explore our comprehensive guide on purchasing policy best practices to enhance your procurement strategy.
What is a Make-or-Buy Decision?
This critical decision involves choosing between manufacturing a product or component in-house or purchasing it from an external supplier. It's a complex consideration, intertwined with the core of business strategy and decision-making, requiring a deep dive into costs, quality control, compliance, and much more.
And what, exactly, is esourcing?
Really, it’s similar to eprocurement, in that it takes a formerly resource-intensive, manual process and streamlines it through computing and the internet. Specifically, esourcing software automates much of the search for a supplier. For example, if you’re purchasing a lot of aluminum bars to make robots, your procurement department can use esourcing software to find multiple sources throughout the supply chain. After all, some items are relatively common, and you may need negotiate a contract with more than one vendor. This way, you can minimize the risk of problems at one supplier upsetting your whole company. In the industry, we call this strategic sourcing.
In practice, this means that esourcing is part of the process which makes procurement operations easier. Arguably, finding the right goods at the right price is the most tedious part of purchasing, because there are often a lot of competitors with different contract terms. Also, some vendors are more resilient to supply chain disruptions, whether it’s due to distance, the availability of raw materials, or other factors. On the other hand, esourcing software makes it easy to find the best deal, and to locate alternatives whenever necessary.
Let’s look at the issue in light of recent events. In January of 2022, one of the biggest natural resources-producing countries in the world sold a lot of goods to hardware-heavy manufacturers. It also aided the global supply chain by exporting energy all over the world. However, in February and March, everything changed. Nowadays, it’s almost impossible to make a contract with companies in that country, either because you can’t send them money or there’s an embargo.
Companies with access to a good esourcing platform are recovering much faster. That’s because they can see other procurement options, almost at a glance. Then, they can try and contract with those other companies directly through their esourcing software.
Chances are that companies without a great esourcing platform took a lot longer to resolve those issues.
Essentially, esourcing and eprocurement are two sides of the same coin
As you can see, esourcing and eprocurement, while different, do not contradict each other. Instead they’re two complementary processes that make the overall procurement process work smoothly.
Think about it this way: How can you purchase goods or services if you can’t find them? And likewise, how can you save money on these essentials if your procurement software doesn’t care about cost savings? Or if you can only contract with a local supplier? On the other hand, with esourcing software it’s relatively simple to find alternative purchasing options. This can save your company a lot of money because you can avoid overpayment and minimize emergency procurement.
Naturally, you don’t need esourcing software if your company has no to minimal procurement needs. Freelancers and other self-employed people rarely need to do much more than go to Staples. However, if you have a lot of hardware that you’re buying on a regular basis, then eprocurement software is a must-have in the modern climate.
Learnings
In essence, both esourcing and eprocurement are essential processes for businesses that regularly purchase goods and services.
Esourcing software streamlines the procurement process by automating the search for suppliers and negotiation of contracts. On the other hand, eprocurement software simplifies the ordering process and ensures supply chain stability, legal compliance, and robust internal controls.
The combination of both processes can provide businesses with an integrated eprocurement system that can help find everything they need and place orders with ease.
For businesses that heavily rely on hardware, this level of precision is especially important. Procurement for these companies usually involves buying things from long distances, and there's a wide range of supplies to source and track.
By using an integrated eprocurement system, companies can leverage contract negotiations, bulk purchasing, and other efficiencies to realize cost savings.
ControlHub is an eprocurement system designed for businesses that purchase a lot of hardware. It provides an integrated purchasing system that can help locate and order items easily, with most of the documentation stored within the program files for easy access by other departments like accounting.
By using ControlHub, companies can resolve issues faster and recover more quickly from supply chain disruptions.
