The complete guide to sourcing in procurement
Many businesses are often confused about sourcing in procurement. While ‘sourcing’ is often used interchangeably with ‘procurement’ and ‘purchasing’, there are some key differences you should be aware of.
In this blog, we’ll tell you everything you need to know about sourcing. We cover what it is, why it’s important, the benefits of strategic sourcing, and the different sourcing strategies out there.
What is sourcing in procurement?
Sourcing is concerned with finding the best value suppliers for goods and services. Generally, sourcing in procurement takes place before any formal purchases are made. As the term suggests, sourcing is all about finding prospective suppliers to deliver the work. Once the necessary suppliers have been sourced, formal purchases can be made.
Why is sourcing important?
Sourcing is important as it adds value to the procurement process. A lack of strategic sourcing could result in buying goods or services with low value, or at higher prices.
What are the benefits of strategic sourcing in procurement?
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Reduced costs
Choosing the right sourcing strategy for your organisation is a great way to save money. This is because you can find a process that is most suitable for your requirements and budget.
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Fewer risks
When you consider different processes for sourcing in procurement, you’ll be able to assess the risks associated with each type. As a result, you can decide which strategy poses the least risk to your business. It will also help you to prepare to minimise potential risks going forward.
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Opportunities for improvement
Learning about different sourcing strategies will give you the opportunity to continuously improve your procurement processes.
For example, your business might have relied on a particular procurement strategy for many years. However, the world of procurement is everchanging, and newer methods might have been introduced. If you don’t take the time to learn about the different sourcing processes in procurement, you could be missing out. There could be a strategy which is more suitable, which could save your organisation money and increase quality and efficiency.
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Find the best suppliers
Sourcing in procurement is your opportunity to find the right suppliers for your project. Instead of accepting the first offer, strategic sourcing allows you to search for the best value and cost.
What are the different types of sourcing in procurement?
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Outsourcing
One strategy for sourcing in procurement outsourcing. This is where a business enlists the help of a third party to complete the work. Many buyers adopt this strategy, and it is generally considered the most common.
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Insourcing
Instead, some businesses prefer to complete the work in-house. If this is your preference, then you should consider insourcing. With this strategy, someone in your existing team will carry out the required work.
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Low-cost country sourcing (LCCS)
Another strategy is low-cost country sourcing, or LCCS. Basically, this involves sourcing materials from countries with lower labour and production costs. Generally, this strategy is chosen when a business wants to focus on cost saving.
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Global sourcing
Global sourcing in procurement is the practice of sourcing goods and services from international markets. There are many benefits to this strategy, such as the opportunity to save money. It’s also a great way to gain insight into how business is conducted around the globe.
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Prime/sub arrangements
This strategy is great for businesses that are looking for a streamlined process with minimal hassle. With this method, the outsourcing process is completed by the third-party outsourcing company. So, most of the transactions take place between the outsourcing business and the subcontractor.
In summary
Sourcing is concerned with finding the best value suppliers for goods and services. Generally, sourcing in procurement takes place before any formal purchases are made. Sourcing is important as it adds value to the procurement process. A lack of strategic sourcing could result in buying goods or services with low value, or at higher prices.
There are many benefits of strategic sourcing, including:
- Reduced costs
- Fewer risks
- Opportunities for improvement
- Find the best suppliers.
The different types of sourcing in procurement include:
- Outsourcing
- Insourcing
- Low-cost country sourcing
- Global sourcing
- Prime/sub arrangements.
How can Hudson Procure help your organisation with sourcing in procurement?
Procure Consult
With Procure Consult, we offer support with tender management and ad-hoc procurement consultancy. Our expert team will manage the end-to-end procurement process or offer assistance with any stage, as and when required.
Procure Health Check
With Procure Health Check, we’ll conduct a full review of the strategic and operational procurement processes within your organisation. We’ll identify the areas that need improvement and help you drive greater value from the procurement process.
Procure Analyse
The purpose of Procure Analyse is to conduct a high-level analysis of your spending activity. We’ll help you understand your current strategic purchasing behaviour and highlight areas that can deliver greater value. Procure Analyse is also offered as part of Procure Health Check or as a standalone service.
Procure Outsourcing
With Procure Outsourcing, we deliver a range of procurement solutions on an outsourced basis, completely bespoke to you. This can range from delivering multiple tender projects as a package to delivering the full procurement function of your organisation.
Procure Post
Are you trying to find a supplier for your project? Post your tendering opportunity onto any of our 11 sector-specific portals for FREE with Procure Post!
Housed by our sister company, Hudson Discover, our portals host thousands of tendering opportunities for organisations of all sizes. For an additional cost, we’ll even help you identify your requirements and find the most suitable suppliers for your business.
Get in touch for a consultation and find out how we can help your business drive better value from procurement.
