The Definition Of Sourcing – So Many Vital Processes

There are a number of different definition of sourcing but mainly there are two major definitions: strategic sourcing and global sourcing.

Definition of Sourcing I – Strategic Sourcing

The first Sourcing definition i.e. strategic sourcing is a concept that was popularized by major consultancy companies in the late 1980’s 1990’s and is now considered a standard purchasing strategy used by many blue chip companies.

However, the most popular definition of sourcing is strategic sourcing. This is the process of taking advantage of purchasing opportunities by continually reviewing current needs against purchasing opportunities.

Strategic sourcing was first established by General Motors in the 1980’s and is now a common business purchasing tool. The rise of China and its manufacturing capabilities has opened up numerous strategic purchasing opportunities.

Strategic sourcing is often used for high valued services, ad hoc purchases and core large values purchases. There are several processes within the strategic sourcing process and these are:

  • Evaluation of the company’s current purchasing cycles.
  • Evaluation of what is currently available in the supply market.
  • A review of the cost benefit analysis of using other suppliers.
  • A review of potential vendors.
  • An update of the current procurement strategy.
  • Negotiations with potential vendors to ensure that they meet the new procurement strategy and cost benefit analysis.
  • Implementation of the new vendor relationship.
  • On a continuous process, review and update the strategic sourcing.

Definition of Sourcing II - What is Global Sourcing?

The second sourcing definition i.e. global sourcing is sourcing products and (sometimes services) irrespective of national boundaries. It is particularly popular within the EEC countries in Europe and Asia. Both of these areas are less concerned with geographic boundaries.

The rise of Chinese and Indian manufacturing capabilities has meant that sourcing from these countries has greatly increased in the past few years. Purchasing companies are seeking low labor and production costs which are not countered by high delivery costs. Many improving countries also offer attractive tax and tariffs to encourage purchasing from them.

Another definition of sourcing is that of sourcing personnel. This is use of proactive searching for potentially highly skilled members of staff that may provide your company with a competitive advantage. Sourcing of staff is also a complex procedure and is used when numerous part time or short term staff are required.

The most common definition of sourcing is the process of identifying potential vendors, conducting negotiations with then, and then agreeing supply contracts with these vendors.

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