Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Sourcing Materials — Processes Explained

As taught in the Value Chain Analysis Course / ★★★★★ 4.9 rating
What are sourcing materials?
- Material sourcing is the process of identifying key suppliers and procuring materials from them.
- They refer to the essential components or goods used in the manufacturing process.
- Sourcing materials are the items acquired to support a company’s operational and production needs.
Meaning of Material Sourcing
Material sourcing is the process of identifying key suppliers and procuring materials from them—negotiating terms and prices through the procurement process and arranging for material delivery. This process ensures that materials are purchased at competitive rates that are beneficial to the buyer while confirming that all materials are of high quality and delivered safely and on time.
Additionally, material sourcing involves thorough market research, evaluating supplier reliability, and coordinating logistics. These steps are essential for supporting production continuity and overall operational efficiency, ultimately contributing to a company’s competitive edge in the marketplace.
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.
To start sourcing materials, a company must 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 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 saved time can be spent on other important tasks, such as sourcing other suppliers, canvassing for more solutions, and so on.
But we’re already getting ahead of ourselves. Here are our 7 easy procurement process steps.
1. Material Sourcing Methodology
Before discussing how the material sourcing methodology is implemented, it’s important to differentiate it from the sourcing strategy and sourcing policy.
The material sourcing methodology is the structured framework that guides the process of procuring the necessary materials. Think of it as a roadmap that outlines every step of your material procurement journey.
In contrast, the sourcing strategy refers to the specific approach or plan you adopt within that framework to meet your material procurement objectives. It defines how you intend to achieve your goals by selecting suppliers, negotiating terms, and managing logistics.
Meanwhile, the sourcing policy consists of the overarching guidelines and rules that govern all material sourcing activities, ensuring that these activities align with organizational standards and regulatory requirements.
With these distinctions clear, the next step is to implement your material sourcing methodology. The process begins with a clear definition of the required materials—this specification serves as the foundation for the entire sourcing process, ensuring that everyone involved understands the materials needed and the desired quality standards.
Securing commitment from management and obtaining support from key stakeholders is crucial for moving forward with the material sourcing objectives. Once these are in place, you should form a dedicated sourcing team to drive the procurement efforts.
With the right team assembled, you then perform a series of analyses, which include evaluating the current purchasing situation, assessing internal processes, conducting financial reviews, analyzing existing contracts, researching the market, and reviewing your material portfolio.
Finally, you interpret the conclusions drawn from these analyses to shape your material sourcing methodology. The outcomes will help determine the most effective approach for procuring high-quality materials at competitive rates, ensuring a reliable supply chain for your organization.
Real-life Example of Material Sourcing Methodology
Nestle is on a mission to achieve its goal of net zero and transition towards a regenerative food system. The company recognizes the importance of how raw materials are produced and sourced.
Thus, Nestle instituted a plan to focus on plant science, dairy livestock, agricultural systems science, and their environmental impacts. Additionally, it plans to work in close collaboration with its internal and external partners to achieve its goal.
Although Nestle has their way of sourcing suppliers, it still follows the usual process of procurement which involves identifying its sourcing methodology, market research, Request for information, Request for quotation, negotiation phase, contracting phase, and supplier relationship management that we are going to discuss with you.
For example, Nestle obtains its products through trade channels, using its procurement organization or directly engaging with farmers through Nestle’s Farmer Connect Team.
The foundation of Nestle’s sourcing approach lies in its responsible sourcing framework, a mandatory practice within the company. They follow the “Nestlé Responsible Sourcing Standard” to ensure adherence to responsible sourcing principles.
2. 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.
Real-life Example of Market Research in the Sourcing Process
In market research, Nestle ensures that all the suppliers work according to the same principles and values that it uses for itself. This is because their ultimate goal is to do business sustainably which will preserve itself and the environment for future generations.
One of their commitments is that they will ensure that the raw materials they will source are not associated with damaging existing rainforests.
They also have a policy that they follow which is the Nestle Responsible Sourcing Standard that describes the requirements and ways of working that they apply together with their suppliers to ensure the sustainable long-term supply of materials and services
3. 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.
Real-life Example of Request For Information (RFI) in the Sourcing Process
For Nestle, their procurement will be involved at the beginning of any process relating to commercial discussions and supplier selection.
The procurement department of Nestle will handle the overall sourcing process, lead supplier selection decisions, and recommend the suppliers they choose to the business stakeholders.
The department’s involvement at the beginning of the sourcing process will allow Nestle to have an appropriate analysis of supply risks and measures to counter those risks.
Additionally, Nestle’s sustainable sourcing is built on its own Responsible Sourcing Standard that sets out basic non-negotiable standards and crucial sustainability practices that it requires for its suppliers, employees, agents, and subcontractors to meet its goal.
4. 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.
Real-life Example of Request For Quotation (RFQ) in the Sourcing Process
As Nestle is a multinational company, it has an excellent sustainable sourcing team that ensures that the raw and packaging materials that it sources from its suppliers meet its standards.
This is because every year, Nestle sources an average of 25 million tons of raw and packaging materials, along with services and indirect materials.
All significant purchases of Nestle will undergo a competitive bidding process to ensure that it is consistently acquiring competitive cost, service, and quality from its suppliers.
Nestle has a prequalification for potential suppliers that will be undertaken to create a shortlist of suppliers. This will ensure that Nestle will have an early understanding of the potential supplier’s capability. Nestle’s requirements are according to:
- Food/packaging safety and quality
- Technical and R&D Capabilities
- Responsible sourcing
- Financial stability
Nestle will only invite the shortlisted suppliers to participate in the quotation process or request for proposal.
5. 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.
Real-life Example of Negotiation Phase in the Sourcing Process
Once the suppliers provide their proposals, the shortlisted suppliers will be evaluated against a predetermined set of evaluation criteria to know if they meet all the requirements of Nestle.
The evaluation criteria of Nestle contains:
- Specifications
- Price Conditions
- Service Conditions
- Food/ packaging Safety and Quality
- Technical, R&D, and Innovation Capabilities
- Responsible Sourcing
- Financial Stability
All important information regarding the supplier’s proposal and any risks associated with the supplier or the delivery of materials will be shared with Nestle to ensure that informed decisions are made that take into account all the relevant details.
Additionally, potential suppliers of Nestle will be further assessed to ensure the compliance of each of their supplying sites. The key focus of supplier assessment will be:
- Responsible Sourcing
- Food/Packaging Safety and Quality
This assessment will be used to make an approval decision as to whether the supplier can or cannot be used to supply goods or services to Nestle.
6. 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.
Real-life Example of Contracting Phase in the Sourcing Process
Once selected, the supplier must abide by the Nestle Supplier Code when delivering their goods to Nestle.
Furthermore, procurement agreements and transactions will be approved by duly authorized personnel within Nestle and the supplier’s organization.
A formal approval process will be documented that includes approval levels, roles, and responsibilities of all parties.
7. Material Supplier Relationship Management (SRM)
The final step is material supplier relationship management (SRM). After completing all the previous steps, you now focus on assessing and establishing strong relationships with your chosen material suppliers, while also maintaining a positive rapport with suppliers who were not awarded the contract.
It is crucial to maintain good relationships with all potential material suppliers, as they serve as viable alternatives in case you need to switch suppliers in the future.
In this phase, active collaboration with your selected material suppliers is essential to ensure they meet their commitments and deliver the agreed-upon materials. Regular communication, performance evaluations, and feedback exchanges are integral parts of this process, helping address any issues, identify improvement opportunities, and promote continuous growth.
Moreover, material supplier collaboration goes beyond a traditional transactional relationship by emphasizing the development of partnerships based on trust, transparency, and shared objectives. By nurturing these relationships, you can strengthen your material supply chain and secure successful long-term partnerships with your suppliers.
Real-life Example of Supplier Relationship in the Management (SRM) in Sourcing Process
Nestle utilizes a supplier portal to facilitate effective collaboration with its global supplier base. The portal grants suppliers secure access to essential processes and tools, allowing them to manage contract-related information, bidding, ordering, delivery, and payment activities efficiently.
Conclusion
In delving into the intricacies of sourcing materials, we’ve embarked on a journey through the essential processes shaping the core of procurement.
Understanding the symbiotic relationship between sourcing and procurement reveals that sourcing is not just about finding suppliers but cultivating robust relationships and strategically managing costs. It initiates a chain reaction that influences immediate procurement decisions and fosters enduring partnerships.
Navigating the procurement landscape demands a well-crafted plan, and our streamlined 5-step process emphasizes efficiency without compromising efficacy. From market research to the contracting phase, each step plays a pivotal role in orchestrating a successful procurement symphony.
Armed with this comprehensive understanding, you are now poised to master the art of sourcing materials, elevating your procurement prowess for enduring success. Onward to procurement excellence!
Additionally, I have created a free-to-download editable sourcing process: 7 steps template. It’s a PowerPoint file, together with an Excel file, that can help you with your sourcing process. I even created a video where I’ll explain how you can use this template.
Frequentlyasked questions
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.