Sourcing and the

management of the
Suppliers
Sourcing – Tactical and
Strategic Sourcing

The goal of strategic

Sourcing refers to the Tactical sourcing aims to sourcing is to optimize the
process of finding, achieve cost savings, supply chain, drive
evaluating, and selecting quality assurance, and innovation, improve
suppliers or vendors for efficient supply chain supplier relationships, and
goods and services operations create sustainable
competitive advantages
Strategic sourcing process

Assessing needs: Understand Market research: Conduct a Supplier evaluation and

the organization's requirements comprehensive analysis of the selection: Develop criteria for
for goods or services, including market to identify potential supplier evaluation based on
quality, quantity, specifications, suppliers, their capabilities, and the organization's priorities and
and delivery timelines their offerings requirements

Contract development:
Negotiation: Engage in Supplier relationship
Formalize the agreement
negotiations with the selected management: Continuously
reached during the negotiation
suppliers to establish favorable manage and nurture
stage into a legally binding
pricing, terms, and conditions relationships with suppliers
contract
 • Continuous improvement:
Regularly review and
evaluate the sourcing
process to identify areas
for improvement

Strategic
sourcing
process
 Sourcing Analysis of market conditions: Gathering information
on market trends, supply and demand dynamics,

Information pricing fluctuations, and regulatory changes that may

impact sourcing decisions
Directives: Understanding and analyzing internal
directives and guidelines that govern the sourcing
process, such as budget constraints, sustainability
goals, quality standards, and legal requirements
E-sourcing: Leveraging electronic sourcing platforms,
online marketplaces, and digital tools to identify
potential suppliers, obtain quotes, and manage
procurement processes efficiently
Locating supplier sources: Researching and identifying
potential suppliers by utilizing industry databases,
trade directories, online platforms, trade shows, and
referrals
Sourcing Information

Supplier performance rating:

Supplier assessment: Evaluating
Monitoring and assessing the
potential suppliers based on
performance of existing
criteria such as product quality,
suppliers based on metrics like
reliability, financial stability,
on-time delivery, product quality,
capacity, certifications,
responsiveness, customer
production capabilities, and track
service, and adherence to
record
contractual terms
Analysis of Market
Supply and demand dynamics:
Assess the balance between supply
and demand in the market
Industry trends: Stay updated on
industry trends, technological
advancements, and innovations
Pricing trends: Monitor pricing
trends for the goods or services
being sourced
Regulatory environment: Understand
the regulatory landscape related to
sourcing, such as import/export
regulations, industry-specific
compliance requirements, product
certifications, and standards
Market competition: Evaluate the
level of competition among suppliers
in the market
Supplier market stability: Assess the
stability of the supplier market,
considering factors such as supplier
financial health, industry
consolidation, and potential risks to
supplier continuity
Analysis of
Market

GEOGRAPHIC MARKET INTELLIGENCE COLLABORATION AND

CONSIDERATIONS: SOURCES: UTILIZE INFORMATION SHARING:
CONSIDER GEOGRAPHIC VARIOUS SOURCES OF FOSTER COLLABORATION
FACTORS THAT MAY MARKET INTELLIGENCE, WITH INTERNAL
IMPACT SOURCING SUCH AS INDUSTRY STAKEHOLDERS,
DECISIONS, SUCH AS REPORTS, MARKET INDUSTRY NETWORKS,
PROXIMITY TO MARKETS, RESEARCH STUDIES, AND PROFESSIONAL
TRANSPORTATION COSTS, TRADE PUBLICATIONS, ASSOCIATIONS TO
GEOPOLITICAL RISKS, AND EXPERT OPINIONS GATHER INFORMATION
AND ACCESS TO RAW AND INSIGHTS ON
MATERIALS MARKET CONDITIONS
 Budgetary constraints: Directives may set specific budget
limitations or approval processes for procurement
Directives activities

Procurement methods: Directives may define the preferred

procurement methods to be used, such as competitive
bidding, request for proposals , request for quotations , or
sole sourcing
Supplier selection criteria: Directives may establish
criteria for evaluating and selecting suppliers, including
considerations like quality, price, delivery time, technical
capabilities, sustainability, and diversity

Contract management: Directives may outline the

processes and requirements for contract creation,
execution, and management
Directives

Procurement process and

documentation: Directives may
Sustainability and social
Ethical and legal considerations: outline the steps and
Risk management: Directives may responsibility: Directives may
Directives may highlight ethical documentation required for each
provide guidance on identifying emphasize the organization's
standards and legal requirements stage of the procurement process,
and mitigating procurement- commitment to sustainable
that must be adhered to during including requirements for
related risks procurement practices and social
procurement specifications, evaluation criteria,
responsibility
proposal evaluation, negotiation,
and awarding of contracts
Directives

Reporting and performance

Internal controls and
governance: Directives may
specify internal controls and
governance mechanisms to
ensure compliance with
policies and regulations
measurement: Directives
may define reporting
requirements and key
performance indicators to
track procurement
performance and monitor
compliance
E-Sourcing Supplier discovery and
management: E-sourcing
Request for Information and
platforms provide a centralized
Request for Proposal : E-
database of suppliers, making it
sourcing tools facilitate the
easier for buyers to discover
creation and distribution of
and evaluate potential suppliers
RFIs and RFPs to suppliers
based on their capabilities,
electronically
products, services, and
qualifications
Online bidding and negotiation:
E-sourcing platforms enable
buyers to conduct online
bidding events, such as reverse
auctions, where suppliers
compete by submitting their
best prices or offers in real-time
E-Sourcing Contract management: E-
sourcing tools often
Compliance and audit integrate with contract
trail: E-sourcing management systems,
platforms often offer allowing for seamless
features that promote transition from sourcing
compliance with to contract creation and
procurement policies and management
regulations

Supplier collaboration
Analytics and reporting: and communication: E-
E-sourcing tools generate sourcing platforms
data and analytics to facilitate effective
provide insights into communication and
sourcing activities collaboration between
buyers and suppliers
E-Sourcing

• Integration with other procurement systems: E-

sourcing tools can integrate with other
procurement systems, such as e-procurement,
supplier relationship management, and spend
analytics platforms
Locating Supplier Sources
Market research: Conduct market
research to identify potential
suppliers
Trade shows and exhibitions:
Attend trade shows, exhibitions,
and supplier fairs specific to your
industry
Supplier referrals: Seek
Industry networks and
recommendations and referrals
associations: Engage with
from colleagues, industry peers,
industry networks and
or business partners who have
professional associations relevant
experience in the same or related
to the procurement category
procurement category
Supplier databases and sourcing
platforms: Some organizations
Online supplier directories and
maintain their own internal
platforms: Utilize online supplier
supplier databases or use e-
directories and platforms
sourcing platforms that include
supplier information
Locating Supplier Local business directories: Check local business directories,
Sources chamber of commerce listings, and government procurement
portals for suppliers in your geographic area

Social media and online communities: Engage with social

media platforms and online communities relevant to your
industry or procurement category

Supplier scouting agencies: Consider engaging supplier

scouting agencies or third-party services that specialize in
identifying and evaluating suppliers

Global sourcing: For global sourcing, consider leveraging

international trade platforms, trade organizations, and
government agencies that facilitate connections with
suppliers from specific countries or regions
 Supplier Qualification criteria: Define the criteria that suppliers must meet
to be considered for assessment

Assessment Supplier profiling: Gather information about the supplier's

background, organizational structure, ownership, history, and
legal compliance

Financial stability and performance: Assess the financial health

and stability of the supplier

Product or service quality: Evaluate the supplier's ability to

consistently deliver products or services that meet or exceed
quality requirements
Production and capacity assessment: Assess the supplier's
production capabilities, capacity, and scalability to meet the
organization's procurement needs

Supply chain and risk management: Evaluate the supplier's supply

chain practices and risk management processes
Supplier Assessment

Ethical and sustainability

Performance history and references:
considerations: Assess the supplier's
Request and review references from
commitment to ethical business
the supplier's existing or previous
practices, sustainability, and corporate
customers
social responsibility

Contractual and legal aspects: Review

the supplier's contractual terms and
conditions, including pricing,
payment terms, warranties,
intellectual property rights,
termination clauses, and dispute
resolution mechanisms
Continuous improvement and
innovation: Assess the supplier's
commitment to continuous
improvement, innovation, and
collaboration
Supplier Performance Rating

Establish performance criteria: Performance measurement: Data analysis: Analyze the collected
Define the criteria and KPIs that will Regularly collect data and performance data to assess the
be used to evaluate supplier information related to the defined supplier's performance against the
performance performance criteria established criteria

Performance improvement plans: In

Rating system: Develop a rating Performance feedback: Provide cases where suppliers fall below the
system or scale to assign feedback to suppliers based on the desired performance standards, work
performance ratings to suppliers performance evaluation collaboratively with them to develop
performance improvement plans
 Supplier
Performance Rating Continuous monitoring Supplier communication:
and review: Supplier Maintain open and
performance rating transparent
should be an ongoing communication with
process, continuously suppliers regarding their
monitoring and performance ratings
reviewing supplier
performance over time
Performance-based Supplier development:
incentives or penalties: Work closely with
Consider implementing underperforming
performance-based suppliers to provide
incentives or penalties to guidance, support, and
encourage suppliers to resources to help them
meet or exceed improve their
performance expectations performance
Sourcing Policies
Sourcing policies: Establishing clear
policies and guidelines that outline
The supplier base: Defining the
the organization's approach to
criteria for selecting and managing
sourcing, including principles, ethical
the supplier base
standards, compliance requirements,
and decision-making processes

Sub-contracting: Evaluating the

Outsourcing or make-or-buy:
potential for sub-contracting work to
Determining whether certain
specialized suppliers or
products, services, or activities should
subcontractors to leverage their
be outsourced to external suppliers or
expertise, enhance efficiency, and
developed in-house
manage capacity constraints
Sourcing
Policies PARTNERING:
EXPLORING
INTELLECTUAL
PROPERTY RIGHTS
SUPPORT FOR
MARKETING -
STRATEGIC AND SECRECY: RECIPROCITY AND
PARTNERSHIPS WITH ESTABLISHING OFFSET: ASSESSING
KEY SUPPLIERS TO POLICIES AND OPPORTUNITIES FOR
FOSTER LONG-TERM PROCEDURES TO RECIPROCAL
COLLABORATIVE PROTECT BUSINESS
RELATIONSHIPS, INTELLECTUAL ARRANGEMENTS
JOINTLY DEVELOP PROPERTY RIGHTS WITH SUPPLIERS,
INNOVATIVE AND MAINTAIN WHERE EACH PARTY
SOLUTIONS, AND CONFIDENTIALITY SUPPORTS THE
ACHIEVE MUTUAL THROUGHOUT THE OTHER'S
BUSINESS SOURCING PROCESS MARKETING
OBJECTIVES EFFORTS OR
PROVIDES
PREFERENTIAL
TREATMENT

INTRA-COMPANY
TRADING:
EVALUATING
OPPORTUNITIES FOR
SOURCING GOODS
OR SERVICES FROM
OTHER ENTITIES
WITHIN THE
ORGANIZATION'S
CORPORATE GROUP
OR SUBSIDIARY
COMPANIES
Sourcing
Policies
Local suppliers, SMEs, and third
sector: Considering the inclusion
of local suppliers, small and
medium-sized enterprises , and
third-sector organizations in the
supplier base
Purchasing consortia: Assessing
the feasibility of joining or
forming purchasing consortia,
Sustainability: Integrating
which allow organizations to
sustainability considerations into
leverage collective buying
sourcing policies and strategies
power, share best practices, and
negotiate favorable terms with
suppliers
 Outsourcing refers to the practice of contracting
Outsourcing and delegating specific business functions,
processes, or activities to external third-party
organizations or individuals

It involves transferring the responsibility and

execution of these functions to an outside entity
rather than handling them internally

Here are the key elements related to

outsourcing
Drivers of Outsourcing
Cost reduction: One of the primary
drivers of outsourcing is cost savings
Scalability and flexibility:
Outsourcing offers scalability and
flexibility, allowing organizations to
quickly adjust the level of resources
and support needed for specific
functions
Access to specialized skills and
Focus on core competencies:
resources: Outsourcing provides
Outsourcing allows organizations to
access to specialized skills,
focus on their core competencies and
knowledge, and resources that may
strategic activities
not be available internally
Improved service quality and
efficiency: Outsourcing can lead to
improved service quality and
efficiency through the expertise and
focus of specialized service
providers
 Benefits of
Outsourcing
Cost savings: Outsourcing can
result in significant cost
savings, primarily through
lower labor costs in offshore
locations, reduced
infrastructure investments, and
economies of scale achieved by
service providers
Access to specialized expertise:
Outsourcing provides access to
specialized skills, knowledge,
and resources that may not be
available internally
Enhanced focus on core
business: Outsourcing non-core
functions allows organizations
to concentrate their resources
and efforts on core
competencies, strategic
initiatives, and activities that
directly impact their
competitive advantage and
value proposition
Benefits of Outsourcing

Increased efficiency and productivity: Outsourcing can improve

operational efficiency and productivity by leveraging the experience
and efficiency of external service providers

Risk mitigation: Sharing certain business functions with external

partners can help mitigate risks associated with those functions
Problems/Challenges of Outsourcing
Loss of control: Outsourcing involves
relinquishing direct control over
certain business functions to external
entities
Quality and performance risks:
Depending on the capabilities and
performance of the outsourced
service provider, there can be risks
related to quality, adherence to
standards, and meeting service level
agreements
Communication and coordination
issues: Effective communication and
coordination between the
organization and the outsourced
service provider are essential for
successful outsourcing
Data security and confidentiality:
Outsourcing often involves sharing
sensitive data, intellectual property, or
customer information with external
parties
Problems/Challenges of
Outsourcing

• Transition and change management: The

transition from internal operations to an
outsourced model requires careful planning,
coordination, and change management
Problems/Challenges of Outsourcing
Full In-House Manufacturing: The
organization decides to produce all
the required components or products
internally using its own resources,
facilities, and workforce
Contract Manufacturing: The
organization outsources the entire
manufacturing process to a third-
party contract manufacturer
Partial In-House Manufacturing: The
organization chooses to manufacture
some components or parts in-house
while outsourcing others to external
suppliers
Licensing or Franchising: Instead of
manufacturing the product
themselves, the organization licenses
the rights to another company to
produce and sell the product under its
brand name or franchise model
Problems/Challenges of
Outsourcing

• Outsourcing Services: Apart from

manufacturing, organizations may also
outsource various services such as IT support,
customer service, logistics, or human resources
to external service providers
 Make or Buy
Decision Trees
A make or buy decision tree is
a structured approach used to
evaluate whether an
organization should produce a
particular component or
product internally or purchase
it from an external supplier
The decision tree typically
involves considering various
Here is a simplified example of
factors and answering a series
a make or buy decision tree
of questions to arrive at the
most suitable option
Subcontracting- Drivers, benefits, problems

Subcontracting refers to
The subcontractor is
the practice of assigning or
responsible for completing
outsourcing a part of a
the assigned work under Here are the key elements
project or a specific task to
the terms and conditions related to subcontracting
an external subcontractor
agreed upon in a
or a third-party
subcontracting agreement
organization
Drivers of Subcontracting
Capacity and expertise:
Subcontracting allows organizations Cost efficiency: Subcontracting can
to tap into the specialized skills, be cost-effective compared to hiring
knowledge, and resources of external and maintaining a full-time workforce
subcontractors who possess expertise for specific tasks or projects
in a specific area

Focus on core competencies:

Flexibility and scalability:
Subcontracting non-core functions or
Subcontracting provides
tasks enables organizations to
organizations with flexibility and
concentrate their resources and efforts
scalability in managing their
on their core competencies and
operations
strategic activities
Benefits of Subcontracting

Access to specialized skills and

Cost savings: Subcontracting can lead
resources: Subcontracting allows
to cost savings by eliminating the
organizations to access specialized
need for hiring and training full-time
skills, knowledge, and resources that
employees for specific tasks
may not be available internally

Faster project completion:

Subcontracting enables faster project
completion as the subcontractor can
focus solely on the assigned tasks
without being distracted by other
internal responsibilities
Risk sharing: By subcontracting
certain tasks or projects,
organizations can share risks with
subcontractors
Problems/Challenges of Subcontracting
Quality control: Maintaining
consistent quality standards can be a
challenge when subcontracting
Intellectual property protection:
Subcontracting may involve sharing
sensitive information or intellectual
property with external subcontractors
Communication and coordination:
Effective communication and
coordination between the
organization and subcontractors are
essential for successful
subcontracting
Dependency on subcontractors:
Organizations can become dependent
on subcontractors for critical tasks or
projects, which may pose risks if the
subcontractor fails to deliver or faces
financial or operational challenges
Problems/Challenges of Subcontracting

Reputation and brand risk: If

Integration with internal
subcontractors fail to meet
operations: Subcontracting
quality standards or deliver
requires effective integration
as per the agreed-upon
of subcontractors' work with
terms, it can negatively
internal processes and
impact the organization's
systems
reputation and brand image
Define partnering-
Drivers, benefits,
problems

Partnering, in a business
context, refers to a
collaborative and long-term
relationship established
between two or more
organizations to achieve
mutual goals and create value
It involves shared
responsibilities, joint
Here are the key elements
decision-making, and open
related to partnering
communication between
partners
Drivers of Complementary expertise and resources: Partnering
allows organizations to combine their unique skills,
knowledge, and resources to create synergies and
Partnering tackle complex challenges
Shared risk and cost-sharing: By partnering,
organizations can share risks and costs associated
with projects, research and development, market
entry, or other initiatives
Access to new markets or customer segments:
Partnering can provide access to new markets,
geographies, or customer segments that may be
difficult to penetrate individually

Innovation and knowledge sharing: Partnering

fosters collaboration and knowledge sharing
between organizations
Benefits of Partnering
Enhanced capabilities and
competitiveness: Partnering allows
organizations to leverage the
strengths and expertise of their
partners, leading to improved
capabilities, competitive advantage,
and market positioning
Risk mitigation and shared resources:
By sharing risks, costs, and resources,
partnering helps to mitigate
individual organizational risks
Increased market access and customer
base: Partnering can provide access to
new markets, channels, or customer
segments that partners may not have
been able to reach individually
Accelerated innovation and time-to-
market: Partnering allows
organizations to tap into the
innovation capabilities of their
partners, enabling faster product
development and time-to-market
 Cultural and organizational differences: Partnerships
Problems/Challenges may encounter challenges due to cultural differences,
conflicting organizational structures, decision-making
of Partnering processes, or communication styles

Trust and control issues: Establishing trust and

managing the balance between control and autonomy
can be a challenge in partnerships

Unequal contribution or benefit sharing: Partnerships

can face difficulties if one partner feels that they are
contributing more resources or efforts than the other

Relationship management and coordination: Effective

relationship management and coordination are crucial
in partnerships
Problems/Challenges of
Partnering

• Exit strategies and termination: In some cases,

partnerships may need to be dissolved or
terminated due to changing circumstances,
strategic shifts, or unforeseen challenges
 Procurement and
Supplier's Intellectual Property: During the procurement
intellectual property process, organizations may come across suppliers who own
rights valuable intellectual property rights related to the products,
technologies, or services they provide

Protecting Buyer's Intellectual Property: Organizations should

also take steps to protect their own intellectual property rights
during procurement

Intellectual Property Ownership: Contracts and agreements

between organizations and suppliers should explicitly address
the ownership and usage rights of intellectual property

Licensing and Royalties: In certain cases, procurement may

involve the licensing of intellectual property from suppliers
Procurement and intellectual property rights

DUE DILIGENCE: ORGANIZATIONS SHOULD
CONDUCT DUE DILIGENCE TO ENSURE THAT
THE PRODUCTS, TECHNOLOGIES, OR
SERVICES BEING PROCURED DO NOT
INFRINGE UPON ANY THIRD-PARTY
INTELLECTUAL PROPERTY RIGHTS
DISPUTE RESOLUTION: INTELLECTUAL COLLABORATION AND INNOVATION:
PROPERTY-RELATED DISPUTES MAY ARISE PROCUREMENT CAN ALSO BE AN
DURING PROCUREMENT OPPORTUNITY FOR COLLABORATION AND
INNOVATION
Purchasing consortia

Group Purchasing Power:

Purchasing consortia allow Supplier Relationships and Access:
Cost Savings: One of the primary
participating organizations to pool Consortia provide members with
benefits of purchasing consortia is
their procurement volumes, creating access to a broader network of
cost savings
larger orders that command better suppliers and vendors
pricing and terms from suppliers

Efficiency and Administrative

Knowledge Sharing and Best
Simplification: Purchasing consortia
Practices: Consortia offer
streamline the procurement process
opportunities for knowledge sharing
by centralizing purchasing activities
and exchange of best practices
and standardizing procurement
among members
practices
Purchasing Industry Influence and Advocacy: Strong purchasing consortia

consortia
can have a collective influence on the market and suppliers
Risk Mitigation: Purchasing consortia can help mitigate risks
associated with procurement

Alignment of member interests and priorities

Balancing individual member needs with collective decision-

making

Maintaining confidentiality and managing sensitive information

Ensuring compliance with competition laws and regulations

Managing communication and coordination among diverse

consortium members
Factors in buying decisions
Level of Demand: The overall
demand for the product or
service in the market
Technological Change: The
pace of technological
advancements and innovations
that may influence product
offerings or production
processes
Economic Outlook: The state
of the economy and its impact
on business conditions, such as
GDP growth, inflation rates,
and consumer confidence
Political Factors: Government
policies, regulations, and
stability that can impact
business operations and market
conditions
Interest Rates: The prevailing
interest rates that affect
borrowing costs and financial
decisions
Government Regulations:
Specific regulations and
standards that apply to the
industry or product being
purchased
Factors in buying Competitive Developments: Actions and strategies of
competitors that may affect the buying decision
decisions Objectives: The organization's goals and objectives,
which influence the selection of suppliers and products
that align with those objectives
Policies: Formal guidelines and rules set by the
organization that dictate purchasing practices, such as
preferred suppliers or sustainability requirements
Procedures: The established processes and procedures
for making purchasing decisions and executing
procurement activities
Structures: The organizational structure and hierarchy,
including roles and responsibilities, authority levels,
and decision-making processes
Factors in buying decisions
Status and Authority: The
hierarchical positions and
authority levels of individuals
within the buying center, which
can influence decision-making
power
Age: The age of individual
participants and how it may
influence their preferences and
decision-making styles
Empathy: The ability of Persuasiveness: The skills and
individuals to understand and ability of individuals to influence
consider the needs, perspectives, and persuade others in the buying
and preferences of others in the center to support a particular
buying center buying decision
Professional Identification: The
extent to which individuals
identify with their professional
roles and responsibilities, which
can influence their preferences
and biases
Factors in buying decisions

Personality: The Attitude towards Risk: The

individual's personality individual's perception of
traits and characteristics, the risks associated with
such as risk aversion, the buying decision and
openness to change, or their willingness to accept
willingness to take risks or mitigate those risks
Links
• https://www.youtube.com/watch?v=mQMdPx-S9YI
• https://www.youtube.com/shorts/NHvX9i0noRY
• https://www.youtube.com/watch?v=ta20VAS1Wmw
• https://www.youtube.com/watch?v=-CPY3e5WAeI
• https://www.youtube.com/watch?v=KXbuabTfaBc