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Sourcing Materials – Everything a Procurement Professional Should Know
Sourcing materials is the foundation of procurement, influencing the supply chain, costs, and relationships.
Key Procurement Steps: Market Research, RFI, RFQ, Negotiation, Contracting, ensure successful sourcing.
Effective sourcing benefits from strategic planning, supplier relationships, and thorough market research insights.
Sourcing materials is the bread and butter of the procurement manager. It is the lifeblood of the company, therefore, every procurement team should be confident and knowledgeable about how both sourcing and procurement work.
For this article, we are going to talk about the awesome world of sourcing materials. We’ll give you a first-hand glimpse as to what it is, how it can help your company, and how to create the perfect plan for sourcing the right materials.
After reading this article, you should be an expert in sourcing materials.
Sourcing Materials – What Exactly is It?
In a nutshell, sole sourcing materials is another word for sourcing, which is a part of procurement.
Sourcing, as most procurement professionals know, is the search for a supplier that can deliver the best supplies or services for a company. It involves finding good quality products and services. Obviously, you do not want your company to acquire goods that do not match your standard. Sourcing also involves negotiating contracts that will benefit you and your selected supplier.
Meanwhile, procurement is the actual process of searching and buying the supplies or services needed for a company to function or grow. If you want an actual and more detailed comparison between sourcing and procurement, we actually have an article for that. Feel free to check it out!
What is the Importance of Sourcing?
Sourcing, as we said, is the beginning of the supply chain. So if the start is already disrupted, the overall process will soon be affected. This will leave your company in a bad light due to customers’ satisfaction which will affect the growth of your business.
Sourcing influences the cost management and relationship with your suppliers. Sourcing makes you compare the prices of each supplier that is vying for the contract. This can be beneficial for you as some suppliers will lower their prices just to get the contract. The supplier will also benefit from this as they will now have a consistent outlet for their goods.
On the other hand, sourcing is the first step in building a relationship. Indeed, you have to find a supplier and communicate with them in order for you to start the relationship. The relationship that you will build with the supplier can be beneficial. The supplier may consider reducing the cost and maintaining the quality of the materials because of the relationship that you build.
How to Source materials
To start sourcing materials, a company will need to create the best procurement plan. This process will make sure that the company will only get the best materials while only spending the least minimal amount as payment.
We at Procurement Tactics developed this simple, yet efficient procurement plan to help procurement managers in teaching how to source materials fast and easily!
We know that there are a lot of indirect procurement processes out there that offer dozens of steps but we believe that having too many processes will not only confuse you, it will also take you too much time to invest in.
Having a simple yet efficient procurement process will not just save you time and effort, but resources as well. The time saved can be spent on other important tasks, such as sourcing for other suppliers, canvassing for other solutions, and others.
But we’re already getting ahead of ourselves. Here are our 5 easy procurement process steps.
1. Market Research
The assignment to buy goods or services can come from companies, managers, or procurement managers themself. More about that in step 2, but before a procurement manager starts procuring supplies, there must first be a need for the said supply. Therefore, it’s the procurement manager’s responsibility to recognize the need for supplies and to develop market research for the said supply.
Market research will help the procurement manager come up with the exact number or amount for the needed supplies.
For example, an IT company has around 40 people coming in as new hires and there are only 20 computers for use. The procurement manager’s market research must have data and research that will help him/her in making sure he knows everything needed for buying additional computers for their growing company.
Some of the questions that a procurement manager should ask during market research should be the following:
- Does the company have a current supplier?
- Does the company have an alternate supplier in case the original supplier is gone?
- Does the company have an ample budget for procurement?
- Is there a shortage of the material that the company is trying to procure?
- If yes, will this affect our company’s budget allocation for the procurement?
- Is there an alternative if the supply needed is not available?
The market research should also cover sourcing for new available suppliers. Depending on the company or not, sourcing specialists can help the procurement manager in identifying new sources of supplies.
Doing your own market research will lessen the chances of searching for suppliers that do not match your requirements.
Finally, the market research helps in identifying key information needed for the next steps. Information such as pricing per supply and brand quality is important and should be included in the research.
2. RFI (Request for Information)
The second step involves asking for information not just from suppliers, but from the heads of the department or branch that need the supplies.
Because before you create a purchasing order, you will need to come up with the exact number of supplies needed. Information such as the number of available supplies and the pricing per supply are just some that you can ask when making the request.
When doing market research, you must ask the following questions:
- Which department or branch in the company needs the supplies?
- How many supplies are needed?
- How long should supplies last? A month? A year?
- Does the branch already have a reliable supplier?
- Is there an opportunity to look for new suppliers?
- How much budget is allocated for the said supply?
- This is why market research is the first step of our procurement process since it will help you identify key information about the supplies you need.
Once the procurement manager has enough data, a purchase request is then sent to higher management for budget approval. This is where company management will then decide how much budget is given to the procurement manager, based on data that was given by the initial market research.
The RFI can be considered a part of the process where you ask for more information from the branch managers, sourcing specialists, and others involved.
3. RFQ (Request for Quotation)
The request for quotation is the part of the procurement process where you ask suppliers for their initial pricing for the supplies needed. Usually done by letter, the procurement manager sends the request while the supplier responds by giving the initial price for the supplies.
For an idea of what to ask the supplier, here are some questions that one can ask:
- Does the supplier have a warehouse for the supplies?
- Where are the supplies located?
- For materials supplied outside of the country, how long will delivery take?
- For materials supplied locally, how long will delivery take?
- How much is the initial price per supply?
- Is there a shortage of the said supplies right now?
Once a reply from the RFQ or request for quotation is received from the supplier, the procurement manager should hold a meeting to discuss the quotes given. A detailed analysis for each pricing is considered while the initial market research will give the procurement manager an idea of how much each supply is priced at a market level.
The information from the market research, once again, is invaluable because it will give the procurement manager an edge when proceeding towards the next procurement process.
4. Negotiation Phase
Perhaps the most challenging yet exciting phase during the procurement process, the negotiation phase is where the procurement manager tries to get or procure the supplies either at a reasonable price or amount.
Negotiations can also extend towards the procurement manager offering concessions towards the supplier in the hopes of doing more business in the future.
During the negotiations phase, the negotiator should consider asking the following:
- Is there an ample amount of supplies for the order?
- Are there special discounts that the negotiator can take advantage of?
- Who is the contact person for the supplier and from the company?
- The negotiation phase is also the event where the skills of a professional procurement manager may shine; once successful, this means he/she has proved his/her mettle as a master negotiator!
During the negotiation phase, always make sure to be ready with the information you gathered during the market research phase.
5. Contracting Phase
The final step of the procurement process, the contracting phase is where the procurement manager takes care of all contracts, invoices, receipts, and documents that were signed and are needed during, before, and after the entire procurement process.
Forming a contract leaves no room for mistakes and binds both parties in doing their obligation. Commonly, you need to expressly imply the specific terms that describe the quality of the product or services. Of course, to also protect the supplier, you must do your obligation to pay appropriately.
During the contracting phase, there are only a few questions involved, but to make the process smooth, the procurement manager should check on the following:
- Were the supplies delivered in good condition?
- Were there any delays with the delivery?
- How can the supplier avoid delays (if they happened) in the future?
- Was payment settled with the supplier?
Most companies employ the use of procurement software to keep all important data and documents stored digitally. For more traditional companies, the procurement manager has to keep track of all receipts and must store them for future reference.
Once you both sign the contract, both of you need to follow the stipulated terms you have agreed upon. This is to make sure that the both of you will mutually benefit.
The contracting phase is also important because if there is a need to procure more supplies from the same supplier, all contracts, documents, and receipts can be used for market research once more.
What are sourcing materials?
Sourcing materials is actually another term for the word procurement.
What is sourcing?
Sourcing is the process of searching for suppliers who can provide the company with the right supplies for its needs.
What is procurement?
Procurement is the entire process of sourcing, selecting, buying, and documenting supplies and services that are needed by the company.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.