Last update : July 12, 2023

What is Sourcing?

Sourcing refers to the purchasing of goods, services, or commodities. Sourcing is the process of using research to find potential suppliers or potential partners, Sourcing is the act of hiring a company or an individual to provide a product or service.

Sourcing is a common way for businesses to find business partners. It is often used to find vendors, suppliers, and service providers.

Organizations use internal resources, such as accounting, human resources, and marketing, as well as external sources, to find companies that may supply them. However, sourcing often begins as a recruitment process where an organization identifies its needs, and gathers and analyzes data.

Organizations generally use the following sources:

  • Outsourcing: The most practical and straightforward example would be hiring a party outside a company to perform services or create goods that were traditionally performed in-house. This can also be done by migrating operations abroad or partnering with a domestic supplier. Both back and front office functions can be outsourced.
  • Insourcing :This type of sourcing involves you delegating a job to someone or a team within the company. Most company leaders prefer this option when available because it is an excellent cost-saving strategy that allows for on-the-ground monitoring of the quality of goods and services required.
  • Near-sourcing: This involves placing some of your operations close to where your end-products are sold.
  • Low-cost Country Sourcing (LCCS): LCCS involves sourcing materials from countries with lower labor and production costs. This type of sourcing focuses on cutting down the overall operating expenses of an organization. China has become the go-to country for this sourcing method for most global corporations.
  • Global Sourcing: The world is now one giant marketplace. Buying goods and services from international markets across geopolitical boundaries has become an easy process. This method has many benefits and exposes your organization to different markets; moreover, you gain insight into how business is conducted worldwide. You also can access a new range of skills and resources that may not be readily available in your country.
  • Prime/Subcontracting Arrangements This arrangement involves a contract between a contractor and a subcontractor to perform a portion of work that is part of a larger project. All contracts are dealt under offshore law because the agreement is between two offshore entities. Procurement teams can reduce the burden of dealing with import or export restrictions.
  • Captive Service Operations: Some organizations go as far as establishing and operating some form of a partly/ wholly-owned entity overseas. This method makes room for greater control and allows you to control confidentiality and security issues. However, your economies of scale will be negatively affected.
  • Professional Service: You can recruit the professional services of occupations in the service sector requiring special training.
  • Manufacturing: The creation of new products either from raw materials or components.
  • Vertical Integration: Involves the merging of companies at different production and/or distribution stages in the same industry. So, when a company acquires its input supplier, it is called backward integration; it is called forward integration when it acquires companies in its distribution chain.
  • Few or many Suppliers: A multi-supplier strategy is commonly used for commodity products, and purchasing is typically based on price. On the other hand, single-source purchasing refers to purchases from one selected supplier, even though other suppliers provide similar products. Sole-source procurement refers to purchases with only one supplier.
  • Joint Ventures: This is a business entity created by two or more parties. It is generally characterized by shared ownership, returns and risks, and governance.
  • Virtual Enterprise: This is when a network of independent companies (i.e., suppliers, customers, competitors) are linked by information technology to share skills, costs, and access to one another’s markets.

As you can see, there are many types of sourcing. The various options mean that the management of these relationships differs significantly.

Sourcing can be broken down into four primary functions:

  1. Marketing Sourcing
  2. Supplier Sourcing
  3. Category Sourcing
  4. Consumer Sourcing

Why are sourcing necessary?

Sourcing is the process of finding and using the best possible sources of information and data for your specific needs. When done correctly, sourcing can help you save time and money, and make better decisions.

What Is the Difference Between Sourcing and Recruiting?

Sourcing is the act of finding or using external resources.

Recruiting is the act of employing or finding people with specialized abilities.

Both sourcing and recruiting are forms of external resource utilization, However, recruiting is usually considered a part of the human resources function. Human resources (HR) professionals are responsible for recruiting and staffing personnel, and maintaining and administering personnel records. In contrast, sourcing is often done by a marketing or sales department, and often does not require an external organization.

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