Sourcing Process — The Ultimate Guide of 2022

The sourcing process is a word where we can associate how sourcing works. We are all familiar with sourcing but many are confused about its processes.

For this article, we will explore what the sourcing process is. We will check how it affects the entire procurement process of an organization.

Reading this article will give you a new perspective on sourcing and its processes. This will allow you to use it effectively in your work or your business. So without further ado, let us check the sourcing process. 

What is Sourcing?

Sourcing, as we know, is the search for a supplier or service provider to get the materials or services. It finds a supplier or a service provider for the business to operate. We can regard sourcing as the beginning of the supply chain. 

Sourcing does not just mean finding materials because it needs to follow the requirements of the company. Once they try sourcing substandard materials, the productivity of the company will be affected resulting in losses

Difference Between Sourcing and Procurement

Aside from procurement being the actual process, it has many differences from sourcing. The following are the differences between sourcing and procurement.

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Types of Sourcing

1. Single Sourcing 

Single sourcing is a process where there is more than one supplier who provides the same products or services that you need. The company only selects one among the other suppliers invited to bid.

2. Sole Sourcing

Sole sourcing refers to a situation where there is only one supplier that can provide your specific needs. These are unique products as there is no other supplier who provides these kinds of materials or services. 

Commonly, these are suppliers who manufacture specialized parts or the only ones left selling the materials or services.

3. Co-Sourcing

Co-sourcing is a partnership between a client and a supplier or service provider. A business will select a vendor to work alongside its team to construct the materials or projects.

In simple terms, the internal staff of the company will work together with an external organization to do a certain task. 

4. Dual Sourcing

Dual Sourcing is the process where a company uses two different suppliers for a specific material or service. In other words, the company will operate with two different suppliers for the same product or service. 

Sourcing Process Steps

1. Assess the needs of the company

Before the sourcing team acquires the materials, it must first assess the needs of each department in the company. This sourcing process also defines the specifications of the needed materials or services.

The company will analyze if the materials are really needed or an unnecessary cost to the company. Assessing the needs will allow the company to avoid buying duplicate materials. 

2. Research the market

After analyzing, the sourcing team will now search for potential suppliers or service providers. This sourcing process allows the company to find suppliers that they can choose in the selection process.

Researching the market includes reviewing market offers and evaluating the market conditions. It also breaks down the cost of components of the product along with the other costs.

3. Develop a sourcing strategy

The third step in the sourcing process is to select the right sourcing strategy. The business will decide where to buy the needed goods or services to minimize costs and stabilize the supply chain.

In this sourcing process, a company will set criteria before choosing potential suppliers or service providers 

4. Issue RFQ or RFP

In this step, the business will invite vendors to compete in the bidding process. The sourcing team will evaluate them based on their proposals. 

The organization can request a quotation or proposal to evaluate each bid of the vendors. Both documents highlight the capability of each vendor. 

Commonly, a request for proposal is more complex than a request for quotation. It includes project details, pricing analysis, and delivery terms. 

5. Selecting a supplier

Once the company receives the proposal or quotation, the selection process begins. The documents will be evaluated based on who matches the requirements best. 

At the end of the selection process, the company will invite its selected vendor for negotiation.

6. Negotiation

In this sourcing process, the company will negotiate the terms with their selected vendor. They will discuss the terms and if both of them agree, they will now sign a contract.

The contract proves that both parties agreed to bind themselves to one another. This sourcing process limits procurement fraud as it obliges both parties to do their obligations. 

7. Analyze the result

The final step of the sourcing process is to analyze the result. The sourcing team will analyze the status of the spend category. Additionally, it will check the performance of the supplier based on the materials or services it rendered. 

Frequently Asked Questions

1. What is the sourcing process?

The sourcing process involves the assessment, selection, and management of suppliers to acquire the needed materials or services. 

2. What are the types of sourcing?

The types of sourcing are dual sourcing, sole sourcing, single sourcing, co-sourcing, and multi-sourcing.

3. What is the difference between sourcing and procurement?

Sourcing is involved in finding the right supplier. However, procurement is the actual process of acquiring the needed materials or services.