The definition of sourcing can be simple and much more complex. The simple definition is “the processes involved in identifying potential suppliers, conducting negotiations with them, and then entering into purchasing agreements with them to provide goods and/or services that meet your company’s procurement needs.”
Sourcing for a company is one of the key business processes that will have a direct impact on the bottom line of any company. If you make a mistake with a supplier, you may find yourself waiting for your rush supplies, receiving sub-standard supplies, or not receiving supplies at all if they go bankrupt. Without supplies, a business cannot function and cannot sell products to others. Negotiate the wrong price level and your company’s profit levels will be directly affected.
With large ad hoc purchases and services, the complexity of the definition of sourcing increases. In this situation, the procurement will include the production and evaluation of Prequalification Questionnaires (PQQ) and Invitation for Bids (ITT), in addition to the entire new set of procedures that are inherent to this complex activity. A bidding situation must be fair and appear fair, so procedures must be very precise and standardized.
When it comes to staffing, whether it is the simpler way of hiring new staff or the more complex requirement of hiring staff, the definition of recruitment is even more extensive. In recruiting, individual staffing providers must first be chosen and then each potential staff member must be evaluated and reviewed. These activities are surrounded by legal restrictions and human issues. This ensures additional procedures with a two-stage supply.
Perhaps the most complex definition of sourcing is a large acquisition of services solely in one area such as facilities management or IT. In this acquisition activity, the company would explain its business problem, the current situation, and what it hopes to achieve. It would then be up to potential providers to propose their own solutions. Evaluating this type of offer is very complex, has many different steps, and is fraught with risk.
Perhaps the easiest definition of sourcing is the one surrounding a procurement auction. In this case, a project is posted on a proper eAuction website and the vendors have to approach you and make their own bids. In this procurement activity, much of the sourcing procedures are computerized and suppliers have to find you and encourage you to choose them.