What is Sourcing in Supply Chain Management?

What is Sourcing in Supply Chain Management?

People will often say that they are sourcing a product, but the word sourcing can become very confusing for many people; this is because it is a word that is used mainly in supply chain management.

Sourcing is about procuring a product or service for your supply chain management. When sourcing, you must 1) identify potential sources, 2) engage with the sources, and 3) select the sources you will buy from. To source a product or service, there are several key steps and areas you must understand as 1) understand your needs, 2) understand the market supply, 3) develop a sourcing strategy, 4) implement your sourcing strategy, 5) engage with potential suppliers, 6) evaluate potential suppliers, and 7) finalize the agreements and purchase.

If you do your sourcing correctly, if your first choice in souring does not work out for some reason, you should have some backup sources in place.

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Sourcing and Procurement

Sourcing is procuring products or services for your supply chain management. Sourcing is more than just buying a product from someone because many steps must take place to find a good source

To properly do product or service sourcing, you must do these important steps:

  • Identify and evaluate potential suppliers
  • Engage with those suppliers
  • Select the supplier that best fits your needs.

Proper sourcing is about identifying, engaging, and selecting potential suppliers. Sourcing is about doing all of the steps to procure the product that you need to purchase.

Sourcing is more than just purchasing a product and service; sourcing is more complicated than just buying a product. Proper sourcing has many extra steps that need to take place in the buying process. This is because sourcing is about ensuring you have the best product, from the right supplier, at the right price.

Key Steps To Source Products or Services

Proper product or service sourcing requires that you implement several key steps. None of these steps should be skipped, as they are all important.

Here are the main steps for sourcing products or services:

  • Understand the Need -Being able to properly source a product or service starts with understanding the need. If you don’t understand the need, it will be tough for you to know what products or services you need to buy and at what quality or price.
  • Understand the Market Supply – To source the product properly, you also need to understand the market supply. Is the item easy to get, or is it tough to get? Does it require somebody with some special skills or knowledge? All these questions you need to understand to know the products you are buying and those products’ market supply.
  • Develop Your Sourcing Strategy – A sourcing strategy will help you be more efficient and effective in your product or service sourcing. You may not find the best suppliers if you haphazardly source a product or service. In this stage of developing your sourcing strategy, you should define how to find your potential suppliers. Are you going to look online? Are you going to attend a show tradeshow? How are you going to find the suppliers?
  • Implement Your Sourcing Strategy – This step is about implementing your sourcing strategy. You will put into action all of your sourcing plans. You send to the potential suppliers the products you want to find or ask them for their catalog or price list.
  • Engage The Potential Suppliers – You will engage the potential supplier in this step. You can find out a lot about a company when you ask them specific questions.
  • Evaluate Potential Suppliers – You evaluate the potential suppliers at this step. This is about bringing all the information the suppliers have given you and then evaluating those materials. There may be two suppliers that are both very similar, but for some reason, you feel that one is better. I usually go with my gut feeling or with a supplier that I feel I can best work with. In the evaluation process, I also look at supplier terms, minimum quantities, return policies, guarantees, quality, etc. Those are all essential things that need to be carefully looked at.
  • Finalize the Agreements and Purchase – Now that you have evaluated the supplier, you are ready to finalize the agreement and the purchase. Now you are negotiating what you will buy and the actual cost and terms of the product or services. Generally, for a first-time supplier, we will order the minimum quantity required to see how they do on the first order and how well we can actually work together.

Having a proper sourcing policy in place will also help you to ensure you get the best supplier for your product or service as possible. If for some reason, that supplier does not work out then you should have several backup suppliers that you can work with.

Properly sourcing a product or service is essential to supply chain management. This is because sourcing is an essential part of the success of a business operation. It can severely affect your operation and bottom line if you do not adequately source the correct products and services at the right price and with the correct terms.

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What Are Some Common Product Procurement or Sourcing Errors?

Product procurement or sourcing is an essential part of any supply chain management. Some common product procurement or sourcing errors include 1) not fully understanding the product they are procuring or sourcing or 2) not understanding the actual product or quality requirements, 3) not properly vet the vendor, 4) wrong vendor and 5) misunderstanding the vendor capabilities.

You can find out more by reading our blog 6 Common Product Procurement or Sourcing Errors, What You Need to Know by clicking here.

Is Vietnam Easier than China to Source or Procure Products From?

Vietnam does not have a highly developed product procurement or sourcing supply chain with clear and concise information as China does. Sourcing products and finding manufacturers in Vietnam can prove much more complicated than finding suppliers and manufacturers in China.

To learn more you can read our blog Is Vietnam Easier than China to Source or Procure Products From? Tips to Help by clicking here.