What Is the Difference in Supply Chain Vs. Procurement Vs. Sourcing?

Although some people use supply chain, procurement and sourcing interchangeably, they actually refer to different aspects of the same part of business -- much the way that the legs and seat are all part of a chair but are not the same. Understanding the difference between them, and their specific roles within business is more than just a vocabulary lesson. It helps you better understand and leverage the different aspects of this important part of your business.

The supply chain consists of everybody involved in getting your product in the hands of a customer. It includes raw material gatherers, manufacturers, transportation companies, wholesale warehouses, in-house staff, stock rooms and the teenager at the register. It also includes the tasks and functions that contribute to moving that product, such as quality control, marketing, procurement and sourcing. Using the above analogy, the supply chain can be considered the entire chair, while procurement and sourcing are parts of the chair.

Procurement is the process of getting the goods and/or services your company needs to fulfill its business model. Some of the tasks involved in procurement include developing standards of quality, financing purchases, negotiating price, buying goods, inventory control and disposal of waste products like packaging. In the overall supply chain process, procurement stops once your company has possession of the goods. To make a profit, the cost of procuring your goods must be less than the amount you can sell the goods for, minus whatever costs are associated with processing and selling them.

Sourcing, as the name implies, is locating sources of the goods and services your company needs. It's a subsection of the procurement process. Where procurement is concerned with the logistics of acquiring materials, sourcing focuses on finding the best and least-expensive suppliers for those goods. This part of the business can include scouting, negotiating, testing for quality and market research. Since the profits of a business can rely heavily on finding the best possible sources, this step is important even though it happens well before the business ever makes its first sale.

Since the 1990s, global sourcing has come to eclipse the original meaning when professionals use the term "sourcing." This is the process of finding sources for goods and services whether or not they're within the boundaries of the country where you do business. Modern communication and transportation technologies have made this strategy profitable despite the logistic challenges of doing business across international borders. This applies both to ordering from factories in countries with lower manufacturing costs and to outsourcing customer service to areas with a lower minimum wage.