What is Sourcing? Definition, Strategy, & Difference Between Procurement and Sourcing

Looking for new ingredients, materials, or products for your business? Where you get these from, or how you source them, can be a huge decision.

Sourcing can seem overwhelming if you’re a brand or retail buyer not entirely sure what you’re doing, but it can significantly impact the quality, cost, and availability of your products.

We’ll walk you through the sourcing process so you can discover, vet, and choose your next supplier or distributor with ease. 

What is strategic sourcing?

Before you leap into the sourcing process, it’s important to have a strategy in place. The best way to do this is through strategic sourcing. Strategic sourcing is a unique purchasing method that aligns your sourcing strategy with your business goals. 

Rather than making a purchasing decision off of the initial cost, strategic product sourcing allows you to refine your sourcing process by conducting ongoing market analysis and forming strong relationships with suppliers. 

Strategic sourcing is often considered the first step in setting up a successful supply chain. Going into the sourcing process with a strategy and pre-set goals in place will make it easier to find exactly what you’re looking for.

Additionally, consider the different types of sourcing that fall within the supply chain and how they relate to your business goals. Three of the most common types of sourcing are:

• Outsourcing: Paying a third party like ShipBob to supply your business with the goods or services you need. The main benefit of outsourcing part or all of your supply chain is the knowledge and skills you gain access to. 
• Insourcing: Internal employees remain responsible for performing the tasks needed to keep the supply chain up and running.
• Near-sourcing: Placing some operations close to where the products are sold to save time and money typically brought on during the transportation process.

What is procurement?

Once you have a strategy and have spent some time researching products, it’s time to acquire the goods and services your organisation has been vetting. This process is known as procurement. Procurement covers everything from placing orders to tracking shipments and auditing deliveries.

What’s the difference between procurement and sourcing?

If you’re still confused about the difference between procurement and sourcing, that’s okay! They work so closely together within the supply chain that it’s often difficult to see where one starts and the other ends. This chart from Kissflow lays out the key differences between sourcing and procurement:

Essentially, sourcing sets procurement up for success by conducting research, vetting suppliers, negotiating contracts, and even figuring out the nitty-gritty details such as order minimums and packaging standards. 

From there, procurement keeps the supply chain running efficiently based on the foundation established during the sourcing process, similar to a train conductor transporting passengers according to a pre-set schedule. 

Why is sourcing important?

Sourcing is important because it allows retailers and brands the opportunity to reliably provide their customers with what they’ve been looking for: quality products at an affordable price. 

Today, there are tons of products, materials, and distributors for brands and retailers to choose from during the sourcing process in order to stay competitive in the market and achieve long-term success.

When searching for new products or materials to source, consider what impacts a consumer’s purchasing decision most. We’re seeing consumers turn their backs on products and brands they’ve been using for years if they no longer align with their values and expectations. 

Supplier diversity, long-term value, sustainability, and convenience continue to play a large role when it comes down to buying everyday items. With inflation still on the rise, budget-friendly alternatives, often from retailers’ private labels, are also gaining traction.

How sourcing helps retailers and businesses

In addition to being able to offer consumers the quality products they’ve been looking for, there are several ways sourcing helps retailers and businesses drive sales. This section will cover how effective sourcing can lead to long-term cost savings, stronger supply chains, a better understanding of the market, and more.

Long-term cost savings

When choosing your next supplier or distributor during the sourcing process, look beyond the price of your first order and ask yourself the following questions. 

• Are they willing to negotiate prices and shipping fees with you? 
• Do they offer bulk order discounts? 
• Is their pricing consistent with those of their competitors? 

You want to ensure you’re getting the best price on the market so you can in turn offer a competitive price to tour customers.

Better quality raw materials

Sourcing the right materials can significantly impact the quality of your final product. For example, low-quality materials may be cheaper, but the product will likely fail to meet customer expectations. 

On the other hand, the product is likely to have a longer lifespan when high-quality materials are sourced, resulting in happier customers and repeat sales. Even if it comes at an additional expense, ask your supplier for a final product sample to ensure it meets the quality standard your customers are looking for.

Stronger supply chain risk management

To avoid delays, canceled orders, and upset customers, developing a strong supply chain during the sourcing process can help identify potential risks and their solutions before they happen. One way to do this is by building relationships with multiple suppliers or distributors, reducing your dependence on a single source should disruptions occur. Try to diversify where these materials are coming from in case delays are caused by weather or shipping issues. 

Increased supply chain sustainability

Consumers are looking deeper into the footprints left by the products they buy, all the way down the supply chain. They are even willing to pay more for brands focusing on environmental, social, and governance issues. 

Third-party certifications add even more value and trustworthiness to your products. When vetting suppliers, find out which ones are committed to sustainable practices and are transparent about where they source their materials and ingredients. 

This will help reduce the environmental impact of your supply chain and make your brand more competitive in the eyes of retailers.

Better understanding of the market

Knowing the ins and outs of the retail market can take years of practice and experience, but businesses with a deep understanding of it have a significant edge over their competitors. By teaming up with established suppliers, distributors, manufacturers, and service providers, you gain access to their knowledge and expertise in the industry. 

Additionally, not having to constantly worry about maintaining a steady supply of materials and potential production disruptions allows you to scale your business in other ways. 

Increased negotiating power

Businesses that can effectively source their products to keep up with today’s fast-growing market can typically negotiate better terms with suppliers, including lower prices, faster delivery, and more favorable payment terms. 

This increased negotiating power can lead to additional profits since the business can better control costs and improve its bottom line.

6 steps for efficient sourcing

Here are 6 steps to have in place in order to select the best supplier for your needs and source ingredients, materials, or products efficiently.

1. Data collection and spend analysis

Consider doing some internal digging before kicking off the sourcing process by conducting a spend analysis. A spend analysis is the process of collecting, analising, and reviewing data about your business’ spending habits and patterns by reviewing financial records, invoices, and data from procurement systems already set in place. 

Taking the time to look at past records helps identify what you’ve been spending the most money on and where you can cut unnecessary costs in your next supplier partnership. 

2. Vendor categorization

Group suppliers into categories based on various criteria such as the products or services they sell, the size of their business, where they are located, and how important they are to your business. This will give you a better understanding of what your suppliers offer and when it makes the most sense to rely on them. 

You may find connections between two suppliers you’ve been outsourcing to and come to the realization that you’ll save money and streamline the procurement process if a single supplier can handle multiple parts of your operation. That second supplier may be better as a backup should you need an alternative source for supplies.

3. Market research

Once you have conducted a detailed spending analysis and identified which suppliers bring the greatest value to your business, it’s time to conduct market research. Market research is the process of collecting and analising data about the market, including consumer habits, competitors, and current industry trends. 

You can use this information to understand your current role in the market, identify risks and opportunities for growth, and make informed decisions about future marketing and sales strategies. Market research can be performed through surveys, focus groups, and online research.

4. Goal & KPI establishment

Defining specific goals and KPIs (key performance indicators) such as reducing costs and improving product or service quality for your next sourcing initiative can guide and evaluate how the project is going and if your relationship with a supplier is working as well as you hoped. 

Align these goals and KPIs with those already set by your business to make it easier to track the success of your sourcing and procurement processes.

5. Bid solicitation & reviews

A common practice in procurement, bid solicitation is the process of inviting suppliers to submit bid proposals for your sourcing opportunity. Suppliers under consideration are usually given a request for proposal (RFP), request for quotation (RFQ), or request for tender (RFT) to complete which outlines the requirements of the discussed project. 

Accepting competitive bids from numerous suppliers allows you to choose the best value for your business after evaluating their prices, quality, references, and industry experience. 

6. Negotiation & contract

Once you’ve reviewed all of the supplier proposals and picked which one you’d like to move forward with, it’s time to negotiate the final details that will be included in your contracts such as price structure, quality, terms and conditions, delivery, and more.

After you’ve come to an agreement with a supplier that fulfils both of your needs, it’s time to draft up a contract! The contract should address all of the terms and conditions included in the deal, along with performance metrics and timelines to make sure both parties stay satisfied and on track throughout the length of the partnership.

Getting started with RangeMe

Now that you understand what sourcing and procurement are and the benefits they provide to your business, it’s time to get started. There are a variety of places to start the research portion of the sourcing process, including trade shows, social media, and discovery platforms like RangeMe. 

Once you’ve set up your supply chain’s fulfilment process with ShipBob, set up a profile on RangeMe to start being discovered by retail buyers from around the world. Buyers use RangeMe to: 

• Discover brands and products
• Request product samples
• Message suppliers
• And so much more!

Fulfilment bridges the gap between sourcing and revenue

Once you have all of your inventory, you’ll need to keep up with sending customers their orders on time. To handle the order fulfilment process, you’ll either need to do it yourself or turn to a professional fulfilment company like ShipBob.

Thousands of ecommerce brands outsource fulfilment to ShipBob, who stores inventory and picks, packs, and ships each order so that brands can focus on what they do best: develop more products, grow their business, and meet their customers’ needs. To work with ShipBob, you can send your inventory directly from you or your manufacturer to any of ShipBob’s fulfilment centres across the US, Canada, the UK, Europe, and Australia.

In addition to our network of warehouses and fulfilment services, ShipBob also offers solutions for brands with their own warehouses. ShipBob WMS combines ShipBob’s warehouse management system with many other benefits of ShipBob’s powerful technology to help you track inventory throughout the supply chain.

Overall, sourcing and fulfilment are two of the most critical pieces of the supply chain, and having solid logistics partners in place can help take your business to the next level.

Getting started with ShipBob

Timely order fulfilment is critical to keeping customers happy, and ShipBob helps with just that. If you’re ready to outsource fulfilment to ShipBob, request a quote to connect with our team and get started.