Every organization has unique goals and strategies, but every sourcing strategy includes the same 3 considerations:
COST
QUALITY
DELIVERY
Sourcing considers the needs of the internal and external customers, assigned commodities and services, raw material or labor cost drivers, and the available suppliers for those commodities and services. With these pieces of information, sourcing develops a strategy that supports the unique goals of the organization.
Highly regulated industries may require pre-approved suppliers that meet rigorous quality standards. Government contracts may require sub-contracting plans that meet compliance and source-selection criteria. An organization may limit sourcing to innovative suppliers who support cutting-edge technology. Some organizations consider cost, quality, and delivery as balanced sourcing components, while others are weighted to one variable versus the others. Sourcing relies on company strategy to determine which elements drive source selection.
Supplier evaluations are critical to a robust sourcing team, usually done annually to refresh suppliers’ capabilities, value-added services, capacity, existing contract terms/conditions, financial risk, and company overview. Supplier scorecards provide past performance data on a timely basis (monthly, quarterly, annually) and support the sourcing team’s strategy.
Sourcing strategy for a commodity or service considers all of these elements in a multi-step process to determine the supplier population. Source selection can be spread out across the supplier population, awarded based on cost, or awarded on a sole-source basis. Justifying source selection should be supported by data that is easy to obtain and explain.
Weak sourcing teams rely on historical decisions, tribal knowledge, and influence from others to determine source selection. Strong sourcing teams develop strong supplier relationships based on data and performance, and are comfortable challenging existing sourcing decisions in the interest of continuous improvement.
