Sourcing refers to finding suppliers to provide the products and services

needed for the day-to-day running of a business. This process also

involves evaluating and selecting the suitable suppliers who help the
organization maintain its competitiveness in the market.
Though sourcing can take some processes, the effectiveness of these
processes lies in helping businesses create an optimized supply chain.

Why is Sourcing Important?

Cost structure, profit margins, and competitiveness are all important
aspects for organizations of all kinds. Sourcing is critical to a company’s
success in achieving all of these goals. Companies can also develop
consistent and optimal supply chains with the help of a well-defined
plan.
Cost management
When sourcing is strategically implemented, both buyer and supplier
benefit from it. They can bargain lower prices for high volumes of
purchases. The result of this is reduced cost prices and competitive sales
prices.
Stability
Once a company finds a good supplier, both parties can develop a
relationship that is beneficial to the smooth running of the business.
Here, the buyer can rely on the supplier to provide quality products.
Managing risk
When a solid relationship between the buyer and supplier is established,
the risks can be managed effectively. In addition, they can rely on each
other for transparency and accountability.
What is the Process of Supply Chain Sourcing?
Though sourcing can take some processes, the effectiveness of these
processes lies in helping businesses create an optimized supply chain.
Let’s take a broader look at the processes here:
1. Selecting a supplier & strategic planning
The supplier of a company’s products impacts the reputation of that
company and the company itself. Companies should tactfully choose
suppliers based on the following criteria:

 Experience
 Cost-effectiveness
 Customer service relation
 Delivery time
 Available of product
 Recent customer review
In the long run, suppliers become business partners and form supplier
relationships. This fact is why companies look for reliable and
trustworthy ones that will serve their interests for a long time.
2. Securing a supplier
This step entails actionable steps to ensure that the supplier you choose
can help you improve your company. Securing a supplier requires you to
do the following:

 Research: By carrying out thorough research, you can find

information on the reputation of a supplier. You can
read customers’ reviews and check out for business verifications
and licenses and necessary certifications.
 Negotiate: You need to negotiate favourable deals for business at
this point. Through bargaining, you compare prices and opt for the
one that will benefit your company in the long run.
 Discuss payment terms: For the cash flow for both parties, it is
essential to agree on when payment will be made and how.
Negotiate deals that will benefit both parties, and take your time
before signing.
 Agree on delivery time: Delivery lead time is critical. Buyer and
supplier must agree to terms that favour both parties.
3. Choose a supplier delivery model
Depending on your agreement, there are a couple of delivery models you
can choose from:
  Just-in-time model: Here, you receive your supplies based on
when you need them.
 Continuous replenishment: The continuous replenishment model
entails ordering supplies in small batches. A supply schedule is
prepared based on the company’s inventory demand.
 On-demand: Supplies are made when requested.
4. Create a contract
Ensure that a well-written contract is drafted between your company and
the supplier. All agreements should be included in the contract, like the
delivery model, payment terms, and contract length, among others.
Advantages of sourcing
Global sourcing helps reduce production costs and increase
manufacturing efficiency. We’ll take a more in-depth look at the
advantages of global sourcing here:
Reduces production costs long term
By sourcing supplies internationally, you save money. The cost of
labour is eliminated, and goods automatically become cheap. In
addition, global sourcing takes the stress off your business so that you
can focus on other aspects of building your business.
Increase manufacturing productivity
Global sourcing provides you access to a limitless number of
manufacturing experts. Another benefit is that some countries have
access to specific resources more than others. You can reach the
suppliers who have both access and experience in the raw materials you
need from them through sourcing.
Helps create an optimized supply chain strategy
Once a company resorts to finding suppliers internationally, the supply
chain is simplified. The company knows where to get supplies. What
this does is optimize the supply chain for effectiveness.
Types of Sourcing
1. Outsourcing
The most practical and straightforward example would be hiring a party
outside a company to perform services or create goods that were
traditionally performed in-house. This can also be done by migrating
operations abroad or partnering with a domestic supplier. Both back and
front office functions can be outsourced.

2. Insourcing
This type of sourcing involves you delegating a job to someone or a
team within the company. Most company leaders prefer this option when
available because it is an excellent cost-saving strategy that allows for
on-the-ground monitoring of the quality of goods and services required.

3. Near-sourcing
This involves placing some of your operations close to where your end-
products are sold.

4. Low-cost Country Sourcing (LCCS)

LCCS involves sourcing materials from countries with lower labor and
production costs. This type of sourcing focuses on cutting down the
overall operating expenses of an organization. China has become the go-
to country for this sourcing method for most global corporations.

5. Global Sourcing
The world is now one giant marketplace. Buying goods and services
from international markets across geopolitical boundaries has become an
easy process. This method has many benefits and exposes your
organization to different markets; moreover, you gain insight into how
business is conducted worldwide.

6. Prime/Subcontracting Arrangements
This arrangement involves a contract between a contractor and a
subcontractor to perform a portion of work that is part of a larger
project. All contracts are dealt under offshore law because the agreement
is between two offshore entities. Procurement teams can reduce the
burden of dealing with import or export restrictions.

7. Captive Service Operations

Some organizations go as far as establishing and operating some form of
a partly/ wholly-owned entity overseas. This method makes room for
greater control and allows you to control confidentiality and security
issues. However, your economies of scale will be negatively affected.

8. Professional Service
You can recruit the professional services of occupations in the service
sector requiring special training.

9. Manufacturing
The creation of new products either from raw materials or components.

10. Vertical Integration

Involves the merging of companies at different production and/or
distribution stages in the same industry. So, when a company acquires its
input supplier, it is called backward integration; it is called forward
integration when it acquires companies in its distribution chain.
11. Few or many Suppliers
A multi-supplier strategy is commonly used for commodity products,
and purchasing is typically based on price. On the other hand, single-
source purchasing refers to purchases from one selected supplier, even
though other suppliers provide similar products. Sole-source
procurement refers to purchases with only one supplier.
12. Joint Ventures
This is a business entity created by two or more parties. It is generally
characterized by shared ownership, returns and risks, and governance.
13. Virtual Enterprise
This is when a network of independent companies (i.e., suppliers,
customers, competitors) are linked by information technology to share
skills, costs, and access to one another’s markets.