Sourcing and Strategic Sourcing

To start, let’s delve into the meaning of sourcing and develop a practical understanding that we’ll utilize throughout this course.

Sourcing – The process of identifying a company that provides a needed good or service.

Sourcing refers to a set of integrated activities that aim to acquire materials, supplies, and services to achieve a company’s strategic objectives. More specifically, sourcing involves the process of purchasing, as well as identifying the need, selecting the supplier, negotiating the price and conditions, creating a contract, and building a mutually beneficial relationship with the supplier.

Carefully analyze the essential components of the following concept:

1. When a company decides to purchase a product or service from an external supplier, there are various measures that the buyer must take to guarantee that the final outcome of the purchase aligns with the company’s objectives concerning cost, quality, and delivery.
2. When sourcing goods and services, it’s important to develop strong relationships with suppliers that can provide what the business needs to achieve its goals.
3. Sourcing refers specifically to the strategic procurement of goods and services.
4. When it comes to procurement, there are several important steps to follow. These include identifying the specific need, choosing the right supplier, negotiating a fair price and contract terms, and fostering positive relationships with the supplier.

Strategic Sourcing

Strategic sourcing involves a focus on the long-term, which extends beyond simply finding a company that can offer goods and services.

Strategic Sourcing – A comprehensive approach for locating and sourcing key material suppliers, which often includes the business process of analyzing total spend-for-material spend categories. Includes a focus on the development of long-term relationships with trading partners who can help the purchaser meet profitability and customer satisfaction goals. Includes the automation for RFQs, RFPs, e-auctions, and contract management process.

Strategic sourcing is made possible by using networking technologies that make it easier to connect buyers and suppliers along the supply chain. These technologies allow the sourcing process to be integrated with supply chain planning and enterprise resources planning (ERP) business systems.

There are three categories for computerized applications:

1. Tools to help make informed decisions when creating sourcing strategies that are effective, including spend analysis, item rationalization, catalog management, contract management, and supplier monitoring and improvement.
2. There are automation tools available for negotiation that can effectively manage supplier databases, facilitate electronic request for proposal (RFP) processes, and conduct Internet-based auctions. These tools can help streamline the negotiation process.
3. The third type of computerized applications is known as value-added services.

Value-Added Services – This function utilizes the internet to provide a wide range of supporting value-added activities. Among these services are financial and billing, comparison shopping, collaborative design and configuration management, promotions and pricing, transportation, and logistics, synchronization of supply chain procurement planning, and establishment of marketplace performance benchmarks.

Although application services are important for meeting immediate needs such as cost reduction, supplier collaboration, and inventory planning, they also offer buyers and sellers the ability to achieve strategic objectives beyond basic transaction management. This allows them to form connected purchasing communities and foster long-term growth.