Procurement

  • 7 min read

Software Sourcing Vs Software Procurement: Similarities and Differences

Rohit Rao

31st December, 2023

SHARE ON:

Software sourcing and procurement software are two frequently encountered terms within the software acquisition process. Though these terms are often used interchangeably, they have their own distinct role in organizations' acquisition of software. This article will explore their differences and similarities to provide a nuanced understanding.

Let's first begin by understanding what software sourcing and procurement software are.

What Is Software Sourcing?

Software sourcing refers to the structured process of identifying, assessing, and choosing software solutions that align with an organization's strategic goals and operational needs.

This process involves defining software requirements, assessing potential vendors, considering budgetary constraints, addressing legal and financial aspects, and managing vendor relationships.

This initial phase entails identifying and selecting suitable software vendors tailored to the organization's specific requirements. It includes researching potential vendors, evaluating their offerings, and selecting software aligning with strategic objectives and technical prerequisites.

What Is Procurement Software?

Procurement is the strategic process of acquiring necessary goods and services that the organization requires. Also, this structured process plays a pivotal role in establishing controls to mitigate risks and optimize costs.

Procurement software is a business tool designed to automate the entire source-to-pay cycle process, from analyzing and managing expenditures to managing contracts and invoice payments. In brief, with the help of this software, users have comprehensive control over each aspect of the procurement process, from spend analysis to payment execution.

Moreover, the organization's procurement team uses the varied capabilities of procurement software to streamline the acquisition of products and services. This tool enables employees to initiate purchase requests from anywhere worldwide, enhancing accessibility and freeing up critical resources. Also, procurement software simplifies order management, reducing administrative complexities and ensuring an efficient procurement procedure.

Benefits Of Procurement Software:

There are several benefits of opting for procurement software, some of which are stated below: 

• Procurement software significantly reduces the time spent on preparing purchase-related documentation, minimizing the risk of human errors. The saved time can then be directed towards essential business initiatives. 

• By integrating your accounting systems with procurement software, your team can ensure accurate logging of transaction data into the record system.

• It provides a lot of power and flexibility to data-driven procurement systems that provide different ways to connect and share information during the procurement process. 

Now that you have an overview of what software sourcing and procurement software is, let's proceed further and find out the differences between sourcing vs procurement software.

Software Sourcing Vs Procurement Software: Key Differences 

The distinction between software sourcing vs procurement software lies in each approach to acquiring software for an organization. 

• Strategic Software Sourcing For Software Acquisition

This phase primarily centers on identifying and selecting software solutions that align with an organization's strategic objectives and operational requirements. It ensures that the chosen software lays the groundwork for successful procurement by defining software needs, evaluating potential vendors, and establishing a well-defined set of criteria for the desired software solution.

• Procurement's Role In Software Acquisition

While sourcing sets the foundation, procurement software focuses on the actionable elements of software acquisition. It involves choosing the actual software vendor, negotiating contracts, processing payments, and ensuring that the legal and financial aspects of the acquisition are well-managed. 

Furthermore, procurement software helps transform strategic decisions into tangible software acquisition, emphasizing efficiency and compliance.

Even though software sourcing vs. procurement software has differences, they also have some similarities. Let's explore the similarities between software sourcing and procurement software.

Software Sourcing Vs Procurement Software: Similarities

Listed below are a few similarities between software sourcing vs. procurement software:

• Clearly Defined Software Requirements

Both software sourcing and procurement software rely on explicitly defined software requirements. Software sourcing establishes these requirements as a foundational step, while procurement software ensures that the selected solution meets these criteria.

• Vendor Evaluation

The preliminary vendor and software solution assessment in the sourcing phase informs the vendor selection process in procurement. Sourcing identifies potential vendors, and procurement software evaluates and finalizes the choice based on this initial assessment.

• Contract Negotiation

Software Sourcing offers insights into preferred contract terms, and procurement software takes these insights to negotiate the final contract with the chosen vendor.

• Budget Considerations

Sourcing identifies budget constraints and long-term cost considerations, which procurement uses as a framework to ensure that the selected solution aligns with the budgetary guidelines.

• Alignment With Strategic Goals

The overarching strategic goals set in sourcing guide both phases. Software sourcing ensures that the acquired software aligns with these goals, and procurement software ensures that the chosen solution continues to align with these strategic objectives.

After going through the similarities, you might have realized how procurement software relies on software sourcing for various tasks. But do you want to know why procurement software only relies on software sourcing? Here's why.

Why Does The Software Procurement Process Relies On Strategic Sourcing?

The success of the software procurement process hinges on strategic sourcing. This strategic approach is crucial for achieving cost optimization, effective negotiation, risk mitigation, and overall efficiency.

Through strategic sourcing, companies can streamline their procurement procedures, cutting costs associated with SaaS software, strengthening negotiation positions, and opting for reputable vendors to minimize risks. 

This collaborative effort yields long-term benefits for the procurement process, nurturing fruitful vendor relationships and optimizing costs. This saves time and enhances functions like accounts payable and procure-to-pay, rendering the entire software acquisition journey more streamlined and cost-effective for businesses.

The reliance of the software procurement process on strategic sourcing is apparent. Procurement experts acknowledge that strategic sourcing acts as a linchpin for boosting profit margins, reducing lead times, and cultivating robust supplier relationships.

By implementing strategic sourcing practices, the procurement department can achieve several key objectives:

1. Helps in cost reduction linked to purchasing SaaS software.

2. Improve negotiating capabilities, leading to more favorable contract terms.

3. Mitigate risks associated with suppliers by prioritizing trusted vendors.

4. Simplify the evaluation and negotiation processes, saving time and effort.

5. Enhance the efficiency of accounts payable and procure-to-pay functions.

Strategic sourcing not only optimizes software acquisition but also plays a pivotal role in achieving cost efficiency and building strong partnerships with suppliers.

Now, let's quickly look at the comparison table of software sourcing vs procurement software to sum it up. 

Comparison Table: Software Sourcing Vs Procurement Software  

To conclude, here's a comparison table of software sourcing vs procurement software: 

Now that you've gained insights into the functions performed by software sourcing and procurement tools, you might be willing to adopt a tool to simplify the software acquisition process. So, out of all the available solutions in the market, one platform that stands out from the rest is Zluri. But why Zluri, and what features does it offer to streamline the software procurement/purchasing process? Here's a quick read-through. 

Choose Zluri To Simplify Your Software Acquisition Process 

Zluri's SaaS management platform evaluates your organization's software requirements and provides you with recommendations to acquire suitable software at a great price. How does it do that? It offers SaaS buying capabilities. This feature is designed to help your procurement team secure the needed software at the most favorable deal. To help you understand better, let's break down how Zluri's SMP streamlines the entire procurement/ purchasing process:

Provides You With Expert Assistance for Optimal Software Acquisition 

Zluri's SMP experts, who are procurement professionals, conduct in-depth market analysis and thorough research and provide these insights to your procurement team. These invaluable insights empower your procurement team to negotiate for the most advantageous deals in the market. 

Beyond just providing insights, these procurement professionals take proactive steps to negotiate on your team's behalf, ensuring that every deal pursued is optimal and profitable. How do these experts negotiate? Well, they use two negotiation ways, i.e., ZOPA (Zones of Possible Agreements) and BATNA (Best Alternative To a Negotiated Agreement).

Uses Zones of Possible Agreements Negotiation Method 

The zone of possible agreement (ZOPA) is considered to be a zone/ bargaining area where two or more negotiating parties can discover mutual ground. Within this zone, compromise and deal-making commonly occur.

To reach a settlement or agreement, negotiating parties must align their objectives and identify a region accommodating some aspects of each party's preferences. To help you understand better how Zluri's SMP uses this methodology. Let's take an example.

You have a budget of $ 40,000 and want to purchase software from a vendor. When Zluri's experts conducted market research, they found out that vendors offer the required app for between $35,000 and $ 45,000. So, in this scenario, the ZOPA is the difference between your spending limit and the vendor's price range of $35,000 to $45,000.

With the help of this information, Zluri's experts can confidently negotiate on your behalf and get the SaaS app for a price closer to $35,000 while ensuring the vendor makes a profit. 

Utilizes Best Alternative To a Negotiated Agreement Method 

The best alternative to a negotiated agreement (BATNA) is another negotiation methodology. In this method, you opt for the most favorable alternative course of action in case negotiations break down and an agreement cannot be reached. 

Basically, it encompasses various scenarios, including discontinuing negotiations, shifting to another negotiating partner, seeking legal recourse, implementing strikes, and forming alternative alliances.

For example, you want to shift to another software and reach out to a potential supplier/ vendor to negotiate a new service agreement. Your preferred vendor is charging $20,000 per year for the plan. However, you have received estimates for $17,000 and $15,000 annually from other vendors giving the same services. In this case, your best option is to choose one of the other vendors if the desired vendor's price is out of your price range. 

With this knowledge, Zluri's experts can bargain with the preferred vendor to get the service for closer to $17,000 or $15,000 annually. Also, you can use your BATNA and select a different vendor if the preferred or potential supplier cannot match this price.

So, this is how Zluri's SMP helps your procurement team acquire software effectively. Book a demo now and see how it helps you get the best deal on every purchase. 

Combine Software Sourcing & Procurement Software To Simplify Software Acquisition 

Combining software sourcing and procurement solutions is a smart and strategic move for organizations looking to succeed in getting the right software. By bringing them together, companies ensure the software fits their goals and is obtained efficiently while adhering to compliance needs. 

This overlap opens doors for making informed IT choices, using resources wisely, and thriving in a digital world where software is key for innovation and competitiveness.

Understanding and embracing this combination is the key to unlocking the benefits of strategic software acquisition and setting organizations up for lasting success.

FAQs

What Is The Difference Between Sourcing And Procurement?

Sourcing involves finding products or services outside of your company, while procurement deals with negotiating contracts to secure the best possible prices for your requirements. Combining these processes can lead to cost savings and enhanced efficiency for your business.

Which Comes First Sourcing Or Procurement? 

Sourcing comes before procurement. The sourcing phase focuses on identifying potential suppliers, assessing their capabilities, and engaging in contract negotiations. The procurement phase initiates once supplier relationships are established through the sourcing process.

About the author

Rohit Rao

Rohit works in the Community and Marketing Team of Zluri and is a strong advocate of community led growth.