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Greetings, and welcome to our presentation on Sourcing. We are pleased you have selected
our program to make you acquainted with this purchasing management practice. As a purchasing
professional, understanding components of sourcing products, equipment, and materials
is important to successfully performing your purchasing responsibilities. This presentation
will define and discuss the components of sourcing.
Sourcing can be defined as finding, selecting, contracting, and managing the best possible
source of supply on a worldwide basis. Sourcing requires the purchasing professional to perform
research about the item(s) needed for the organization to function. Sourcing is a vital
part of an organizations success. More and more organizations are sourcing not only parts,
but also services. There are four important components of sourcing mentioned in the definition.
These components are finding, selecting, contracting and managing. These components describe the
duties that have to take place in order to properly perform the sourcing task.
Finding is the first step to sourcing. This step starts once the purchasing professional
understands what needs to be sourced. This information may include an engineering drawing,
a description of work, a bill of material or some other form of information for the
purchasing professional. At this point, the purchasing professional has to find various
things. They must find all the information that can be obtained about this part. Finding
is the research component. It is also the part where the purchasing professional finds
not only information but also potential suppliers to source from. This could require additional
research and even looking at non domestic suppliers. This is the stage where the request
for quote and the exchange of information with potential suppliers happens.
Once a satisfactory number of potential suppliers have been given the opportunity to submit
their bids for the part or service, the next step is to select the supplier that would
be performing the work for the organization. When selecting the supplier to perform the
work, there are certain things to be considered. Usually the first thing to catch the attention
of the purchasing professional is the quoted price for the part or service. This could
include tooling costs, freight costs, set-up costs and other fees associated with getting
the part produced. The supplier is responsible for revealing the cost in detail on the proposal.
The supplier (nor the purchasing professional) wants any surprises when it comes to costs.
Once the decision has been made pertaining to which supplier will be awarded the work,
the purchase order will be issued to the winning bid. This is the contracting stage of the
process. The contracting stage is the Òseal the dealÓ stage. The agreement (purchase
order) is signed and issued by the purchasing professional. Once the selected supplier has
been given the purchase order, they should confirm receipt and acceptance of the offer.
The agreement should be reviewed by both parties and any delivery schedules, review schedules,
etc. should be discussed and agreed upon. The contracting process entails starting to
partner with the supplier to get the needed product or service for the organization. The
contracting process binds the agreement between purchaser and the supplier. This is probably
one of the most important steps in the sourcing process. This is the process that, in a sense,
binds the purchaserÕs organization with the supplierÕs organization. The supplierÕs
ability to support the purchasing organizationÕs needs will have an effect on the purchasing
organizationÕs ability to perform. The final step in sourcing is managing the
supplier. This includes the supplierÕs performance and whether the deadlines and delivery dates
are being met. Also, there should be audits (whether formal or informal) performed of
the supplierÕs organization. The purchasing professional can audit a supplier by performing
a formalized onsite audit of the supplierÕs facility. Another way is an informal audit,
which is just a visit to the supplierÕs facility to get a feel for how the operation is running.
The things that should be looked for is whether the workers appear to be busy or not. Notice
if the organization appears to be working at capacity or are there a lot of workstations
empty and not the full crew working. Also notice how management and the employees are
interacting with each other. Does it seem to be a well-run organization?
Sourcing is a critical part of the purchasing professionalÕs responsibility to their organization.
It is important that the four steps in sourcing are included when sourcing a product or service
for the organization. If the process is done correctly, the purchasing professional will
almost always find the right supplier to support their organizationÕs needs. In recent years,
sourcing on an international level has become a part of this process. When sourcing internationally,
the purchasing professional has to be aware of the exchange rate between the country that
the supplier resides in and the country the purchasing company resides in. Also important,
knowing the total freight costs incurred in getting the part from the supplier to the
buying company. There is usually additional time required for parts to go through customs
which adds to the lead-time of getting the parts to the facility.
Sourcing is critical to most organizations because it plays a role in their ability to
support their customers. When sourcing a product or service the purchasing professional has
to make sure the four steps are adequately covered. These steps finding, selecting, contracting
and managing will help to ensure the purchasing process is carried out to support the success
of the organization.