What is Sourcing in Supply Chain Management?

What Is Sourcing in the Supply Chain?

The process of evaluating, choosing, and managing suppliers who can offer the inputs required for a company to operate on a daily basis is known as Sourcing. During the process of sourcing an organisation has to take care of conducting research, developing and implementing a plan, defining quality and quantity indicators, and selecting suppliers who satisfy these requirements.

Sourcing fits into Supply Chain Management like hands in a glove.

The process of sourcing keeps the organization’s supply chain in good shape and ensures that it always has access to the resources it needs to accomplish its goals.

Benefits Of Sourcing in Supply Chain

Maintaining well-established sourcing patterns in supply chain management can help both supplier and client in various ways. Let’s check them out!

1. Stability

While sourcing the supplier of the goods or raw materials, a connection is established. As suppliers and clients cooperate to discover and reduce the core causes of any flaws that harm both buyer and seller, old and reliable relationships can result in greater quality and efficiency.

2. Mitigating Costs

Sourcing is a win-win situation for both buyers and suppliers. A wholesale purchase lets the buyer get the deal at relatively low prices. Suppliers gain because they have a reliable market for their products, which improves future planning and cash flow.

3. Reduced Risk Factor

In addition to identifying and resolving issues during sourcing in the supply chain, a solid partnership based on trust can reduce risk. An honest discussion can begin when both parties are confident in their ability to rely on one another. As a result, the risk factor gets reduced in the end for both parties.

How to Source Products and Services

You must follow several steps to ensure that your product or service sourcing is successful. These steps are vital and should not be overlooked.

These are the main steps to sourcing services or products:

Understanding the Need – To source, the right product or service begins with understanding the need. It will be difficult to understand the need and determine what services or products you want to purchase.
Understanding the Market Supply To source the product correctly, you must also understand the market supply. Is it easy or difficult to obtain the product? Is it difficult to obtain? These are all questions that you must answer to identify the market demand for the products you’re buying.
Create Your Sourcing Strategy. A sourcing strategy can help you be more efficient in your product and service sourcing. You may not be able to find the best suppliers if you source products or services randomly. This stage is where you need to define your sourcing strategy. Do you plan to search online? Do you plan to attend a tradeshow? How will you find suppliers?
Implement your Sourcing Strategy – This step will help you implement your sourcing strategy. Send the products that you are interested into potential suppliers.
Engage Potential Suppliers This step will allow you to engage with the potential supplier. Asking specific questions can reveal a lot about a company.
Assess the Potential Suppliers – This step is where you assess potential suppliers. It involves gathering all information from suppliers and then evaluating the materials. You may find two very similar suppliers, but you feel one is superior. I tend to go with my gut instinct or choose a supplier I feel is the best for me. I consider a supplier’s terms, minimum quantities, return policies and guarantees, and quality. These are all important things that you must consider.
Finalize the agreements and purchase. Now that you have evaluated your supplier, it is time to close the deal and complete the purchase. Now, you need to negotiate the price and terms of the products or services you want. We will normally order the minimum quantity for first-time suppliers to test their abilities and see how we can work together.

A good sourcing policy will help you ensure that you have the best supplier possible for your product. It will help if you always have backup suppliers if the primary supplier fails to work out.

Properly sourcing a product/service is an integral part of supply chain management. Sourcing is an integral part of any business’s success. It can be very costly to source the right products and services at the right prices and terms. This could have a serious impact on your business and bottom line.

Different Types Of Sourcing

Outsourcing

In this process, sourcing is outsourced to a third party. Supplies are typically outsourced by businesses to make the maximum use of expertise and skill sets and reduce expenses.

Insourcing

This type of sourcing allows you to assign a task to a team or individual within the organisation.

Near Sourcing

This entails locating some of your operations close to the points of sale for your finished goods.

Vertical Integration

It is the process of bringing together two or more businesses that are situated at various stages of production or distribution, but that are still part of the same sector.

Joint Ventures

Sourcing through joint ventures allows organisations to have shared governance, benefits, and ownership. The goal of joint ventures is to pool resources and work toward the creation of a single profitable undertaking.

Virtual Enterprise

Virtual Sourcing allows various suppliers and clients to share resources like costs and markets in a virtual way i.e. through information technology.

Few or More Suppliers

For single-commodity products, a multi-supplier procurement method is used, using pricing as the basis for selection. Purchasing from a single, chosen supplier—even though there are other providers who provide the same product—is known as single-source purchasing.

Global Sourcing

With the entire planet transforming into a global village, sourcing goods and services from international markets have gotten easier. Global sourcing allows clients a number of benefits, opens up new markets for your firm, and gives a global perspective on how business is conducted. Furthermore, you have access to a greater range of resources and skills than you can have in your own country.

Sourcing vs Procurement

Many confuse sourcing and procurement as interchangeable terms for acquiring materials for a business based on their apparent meanings. Although they both have important responsibilities in maintaining a smooth supply chain, the two are extremely distinct and must be used in various ways to guarantee your company’s success. Let’s understand the difference between both:

Sourcing deals with the “Who” and the process of procurement concentrates on the “What” and “How” parts of supply chain management.
Sourcing facilitates the flow in supply chain management whereas procurement focuses on expediting the movement of supplies. The supply networks and connections made through supplier sourcing help the procurement process
Choosing to maintain or end vendor relationships is another crucial aspect of sourcing that distinguishes it from procurement. To do this, the procurement team’s data is used to assess a supplier’s performance over time.
The key distinction between the two is the process of procurement is followed by sourcing. Although it is possible for less complicated organisations to integrate the two, keeping them distinct frequently results in smoother operations and fewer mistakes.
In the end, sourcing emphasizes more on building connections with suppliers and reducing the risks associated with hiring new suppliers. Teams in charge of procurement handle the buying and obtaining of supplies required to make commodities for sale.