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The most common definition of Sourcing is the following: “it is the process of identifying potential suppliers, conducting negotiations, and then entering into supply contracts with these suppliers.
Nevertheless, there are several definitions of Sourcing, which can be divided into two main categories: Strategic Sourcing and Global Sourcing.
First Definition: Strategic Sourcing.
The first definition of Strategic Sourcing (i.e., strategic purchasing) is a concept that was introduced by major consulting firms in the late 1980s. It is now considered a standard purchasing strategy used by many blue chip companies.
However, the most common definition of purchasing is Strategic Sourcing. This is the process of leveraging purchasing opportunities by continually reviewing requirements against market opportunities.
Strategic Sourcing was created by General Motors in the 1980s and is now a common purchasing business tool. The rise of China and its production capabilities has opened up many opportunities for Strategic Sourcing.
Strategic Sourcing is often used for high value services, ad hoc purchases and advertising purchases. There are several Strategic Sourcing processes, namely:
- Assessment of the company’s current buying cycles.
- Evaluation of what is currently available in the market.
- Review of the cost-benefit analysis of using alternative suppliers.
- Review of potential suppliers.
- Update of the current sourcing strategy.
- Negotiations with potential suppliers to ensure compliance with the new sourcing strategy and cost-benefit analysis.
- Implementation of the new supplier relationship.
- On an ongoing process, review and update the Strategic Sourcing.
Second Definition: What is Global Sourcing?
The second definition of Global Sourcing is the purchase of products and services across national borders. It is particularly popular in the European Union countries and in Asia. Both of these areas are less concerned with geographic boundaries.
The rise of Chinese and Indian production capacity has significantly increased purchasing in these countries in recent years. Companies that buy are looking for low-cost labor. Many countries also offer tax advantages and attractive prices to encourage investment.
However, another definition of Sourcing exists, that of People Sourcing. It is the proactive search for highly qualified profiles for companies, a competitive advantage. Personnel Sourcing is also a complex process that is used when many part-time or short-term employees are needed.
Map your purchases with the Kraljic matrix
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