The definition of sourcing can be simple and much more complex. The simple definition is “the processes involved in identifying potential vendors, conducting negotiations with them and then signing purchasing agreements with them to provide goods and/or services that meet your company’s procurement needs”.
Sourcing of vendors for a company is one of the key business processes that will directly impact upon the bottom line of any company. Make a mistake with a vendor and you may be waiting for your urgent supplies, receiving supplies that or sub standard or not receiving supplies at all if they go bankrupt. Without supplies, a company cannot function and cannot sell products to others. Negotiate an incorrect price level and your company’s profit levels are directly affected.
With services and large ad hoc purchases, the complexity of the definition of sourcing increases. In this situation, sourcing will include producing and evaluating Pre Qualification Questionnaires (PQQ’s) and Invitation To Tenders (ITT’s) plus the entire new set of procedures that are inherent with this complex activity. A tendering situation needs to be fair and seen to be fair so the procedures need to be very accurate and standardized.
Where staffing, whether the simpler form of hiring new staff, or the more complex requirement for contract staff, is concerned the definition of sourcing is even more long winded. In sourcing for staff, individual staffing vendors first need to be chosen and then each potential staff member needs to be assessed and reviewed. These activities are surrounded with legal constraints and human issues. This ensures for extra procedures with a two stage sourcing.
Perhaps the most complex definition of sourcing is that of a large services only procurement in an area such as facilities management or IT. In this procurement activity, the company would explain their business problem, the current situation and what they are hoping to achieve. It would then be up to the potential vendors to propose their own solutions. Evaluating this kind of bid is very complex, has many different steps and is fraught with risk.
Perhaps the easiest definition of sourcing is those surrounding a procurement auction. In this case, a project is posted in an appropriate e-auction web site and the vendors then have to come to you and make their own bids. In this procurement activity much of the sourcing procedures are computerized and the vendors have to find you and encourage you to choose them.