It’s Sourcing, Procurement, and Global Trade

A few years ago, I took the time to remind you that it’s Sourcing and Procurement because it appeared that some vendors wanted you to believe that it’s e-Sourcing or e-Procurement, or some fractured combination of both, because that’s what they have and they want all of your business.

As I said before, e-Procurement and e-Sourcing are not the same thing. From a supply management perspective, they’re two halves of a whole, one tactical and one strategic. And while they bring value alone, combined they bring much greater value. Sourcing leads into Prourement, usually off of a contract, but sometimes after e-Negotiation or decision optimization alone, and Procurement leads back into Sourcing, through the analysis step. Without Procurement, the organization wouldn’t have a large transaction database and extensive visibility into spend, and without Sourcing, there would be no strategically negotiated contracts to buy against, leaving procurement managers the freedeom to spend willy nilly.

But when it comes to supply management, Sourcing and Procurement are still not the full picture. While they are the full picture from the viewpoint of the buyer / analyst in a mid-sized or larger supply management organization, they do not address the supply side, or the fact tht goods need to come from a supplier, sometimes by way of a distributor, and end up in the buyer’s warehouses for shipment to stores and/or end consumers.

The goods have to be packed, shipped, exported, imported, and, sometimes, finananced. And the settlement function has to take into account invoice discounting and chargebacks, at a minimum. This doesn’t sound too bad until you realize that the average international shipment requires twenty or more documents for export and import, especially when the US or the EU is involved. Ever since the introduction of 10+2 and new advance cargo declarations in the EU, it seems that documentation requirements have been compounding ever since.

And while this functionality does not necessarily have to be in the e-Sourcing or e-Procurement system, it is needed by any company doing international business and it should be easy for a company to push data out from the e-Sourcing/e-Procurement system into the appropriate Global Trade Management system and pull the necessary data back in for analysis.

Because, when you consider the average transaction in today’s global supply chain end to end, this is what you usually end up with.

Sourcing – Spend Analysis (what needs to be sourced)
Sourcing – e-Negotiation (RFX, Auction – who will it be sourced from)
Sourcing – Decision Optimization (optional, to analyze the bids)
Sourcing – Contract Management (to store the awards)
  Procurement – Requisition (for a Bill of Materials)
  Procurement – Approval (for the requisition)
  Procurement – Purchase Order (for the supplier)
    Global Trade – Financing (can be pre or post invoice)
    Global Trade – Packing (goods have to be properly packed and labelled)
    Global Trade – Shipping (goods have to be shipped)
      Freight Forwarder (if a third party handles the shipping)
      Export Documentation (for the supplier’s home country)
      Import Documentation (for the buyer’s home country)
  Procurement – Good Receipt
  Procurement – Invoice
    Global Trade – Invoice Discounting (if the buyer pays early)
  Procurement – Reconcilation
  Procurement – Payment
    Global Trade – Settlement (the purchase has to be settled in the source accounting system)
    Global Trade – Chargebacks (chargebacks for penalties or returned goods have to be accounted for)
  Procurement – Tax Reclamation
Sourcing – Spend Analysis (what needs to be sourced)