Sourcing and procurement are a vital part of the supply chain management. The company decides if it wants to perform all the exercises internally or if it desires to get it done by any other independent firm. This is commonly referred as the make vs buy decision, which we will be discussing in brief in another chapter.
Procurement “is the process of getting the goods and/or services your company needs to fulfil 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 the 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.”
Sourcingis the method of outsourcing a particular supply chain activity such as production, storage, transportation, or the management of information. At the strategic level, the decision of sourcing determines what functions a firm performs and what functions the firm outsources. Sourcing decisions affect both the responsiveness and efficiency of a supply chain. For example, if a company outsources its production to a contract manufacturer, but this choice may increase the transportation cost.