Everything You Need to Know About Sourcing Definition
The sourcing definition is simple to understand. It involves the practice of choosing businesses or people based on a particular set of criteria.3 min read updated on February 01, 2023
The sourcing definition is simple to understand. It involves the practice of choosing businesses or people based on a particular set of criteria. Sourcing is commonly used in the supply chain management industry.
Parts of a Sustainable Supply Chain
A sustainable supply chain can be broken down into four parts:
- Environmental practices: the way a supplier's practices affect both living and non-living natural systems, such as land, air, water, natural resources, and various ecosystems.
- Social practices: the ways a supplier's practices impact its employees and customers as well as the communities it serves.
- Economic practices: the influence the supplier's practices has on the financial status of its stakeholders and the economy on three different levels -- local, national, and worldwide.
- Ethical practices: the way a supplier's practices align with applicable laws and regulations as well as with moral systems.
If a supplier's record is enriched in each of these parts, it becomes easier to manage reputational risk. In doing so, it becomes possible to decrease expenses, improve quality of services and products, and increase revenue.
Businesses that are able to establish relationships with appropriate suppliers are able to secure a competitive edge. This involves proactively searching for suppliers that can best meet the needs of various operations. Outsourcing comes in many types. Many businesses find they need to outsource a variety of functions to different suppliers, such as payroll activities to a payroll service provider.
How to Choose Suppliers When Sourcing
To help ensure the most appropriate suppliers are chosen, it's vital to create a list of potential suppliers and then pinpoint which ones can best meet a company's individual needs. Crowdsourcing has become a popular method for using a group of people or companies to perform a certain function in the most efficient manner possible. This is often used for recruitment purposes.
Generally, sourcing is an activity that will take place before procurement. There are numerous facets considered when sourcing tasks to suppliers, including their price rates, delivery methods, and the time in which they can complete their services.
When sourcing is approached correctly, it results in acquiring suppliers at a reasonable price. It also enhances the overall effectiveness of procurement.
Difference Between Procurement and Sourcing
Procurement is often confused with sourcing. Some of the activities that are involved in sourcing sometimes are intertwined with procurement; this is especially seen among small businesses. However, it is best to view both sourcing and procurement as two different activities, both of which have their own challenges, objectives, and key performance indicators.
When compared to sourcing, procurement is similar in that both involve the act of purchasing goods or services. The first step in sourcing a product or service involves assessing the need. From here, a sourcing plan is created and market research is conducted to identify potential suppliers. Next, a supplier is chosen. In some instances, more than one supplier will be needed.
The procurement department is typically involved in the sourcing process. Procurement staff members create a budget, order products or services through the supplier, verify product or service details, and stay in contact with suppliers to ensure everyone is on the same page. These staff members are also responsible for maintaining receipts of all purchased goods and services that are outsourced. The receipts are sent to the accounting department to ensure accounts receivable and payable are kept up to date.
There are three primary parts of procurement that are measured using metrics and analytics:
- Cycle time
- Cost per purchase order
Although the procurement department is heavily involved in sourcing, there are usually two separate teams or departments in place to handle sourcing and procurement tasks. In some instances, the sourcing team is not needed to perform vetting activities when building relationships with suppliers. Instead, the procurement team manages the ordering of indirect goods and services. On the other hand, the procurement team is not always needed to handle the ordering of direct goods and services. The sourcing team takes control of such activities.
Still yet, both procurement and sourcing departments and teams maintain much interaction with suppliers. Being that both departments have their own set of objectives, though, they tend to use different tools and resources to ensure actionable data is produced to refine their processes.
What Is Strategic Sourcing?
Strategic sourcing is a sub-set of sourcing and is often used when sourcing services that are of extreme value as well as for ad hoc purchases. Strategic sourcing involves continually reviewing and refining sourcing activities. The goal is to optimize sourcing opportunities by acquiring goods and services at a lower cost while still maintaining high quality.
If you have a question about sourcing or need help with sourcing goods and services for your business, you can post your legal need on the UpCounsel marketplace today.