What is sourcing?
The main stages of a generic procurement process as shown below starts with the identification of the need.
Sourcing Is basically that part of the procurement process that is concerned with ‘how and where services or products are obtained’ according to CIPS definition. And Lysons and Farrington (Purchasing and Supply Chain Management) define it as ‘the process of identifying, selecting, and developing suppliers’.
sourcing can be carried out at two basic levels; TACTICAL and STRATEGIC.
Tactical or (operational) sourcing processes are concerned with;
1. Lower-level decisions relating to low-profit, low-risk, and routine items.
2. The formulation of short-range decisions as to how specific supply requirements are to be met.
3. Clearly defined requirements and specifications, and transactional sourcing decisions based mainly on open bidding and purchase price.
Strategic sourcing processes are concerned with;
1. Top-level longer-term discussions relating to items with high profit and high supply risk.
2. The formulation of long-arrange, high-level decisions eg about procurement policies, the supplier base, supply chain relationships.
3. Developing a deep understanding of requirements and of the supply market and individual supplier drivers and capabilities.
CIPS defines strategic sourcing as: ‘satisfying business needs form market via the proactive and planned analysis of supply markets and the selection of suppliers with the objectives of delivering solutions to meet predetermined and agreed business needs’.
Strategic sourcing is a complex process, involving a number of staged, interrelated tasks. A number of complex models have been developed to map and describe this process in different context, but a basic generic model may be as follows.
1. Identification of the requirements.
2. sourcing plan.
3. Market analysis.
4. Pre-qualification of suppliers.
5. Evaluating supply offers and options.
6. Creation of contract or relationship.
Of course, this is really only the beginning of contract management and fulfilment, and potentially ongoing relationship development. Further processes and the details of them is discussed in sourcing procurement and supply topic of CIPS diploma.