Definition of Sourcing

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Sourcing is the location, acquisition and management of all the vital inputs required for an organization to operate. This includes raw materials, component parts, products, spares, labour in all forms, locations and services.

Sourcing is therefore a key function of any business enterprise or organization and while successful sourcing does not necessarily translate to a successful business, unsuccessful sourcing almost always translates into a failed enterprise.

A key to understand sourcing is that whether it is:
  1. a product or service;
  2. purchased in small lots or large quantities;
  3. pick up by a staff member from a local store during lunch hour or send along a 10,000 mile supply chain;
  4. acquire domestically or from a foreign supplier, it is sourcing.
What is Sourced?

If an organization spends money on it, it is sourcing. What is sourced includes, raw materials, component parts, intermediate products, supplies, tools, machinery, equipment, motor vehicles, energy, production facilities rented or owned, regional office rented or owned, office equipment, office furniture, information technology equipment, computer software, production labour, sales force, temporary labour, communication services, information technology services, design and engineering services, legal and accounting services, marketing and advertising services, graphic services, call centre and help desk.

Key Component of Sourcing

Successful sourcing has three key components:

Sufficient Quality: The acquisition of products or services of sufficient quality. This means the products and services need to be of a quality sufficient for the requirements of the job.. If the quality of any component is too low, the final product or service would suffer. If the quality is too high, the sales price of the final product or service may be uncompetitive in an open and challenging market trend.

Uninterrupted Supply: This means the products and services need to consistently get to where they are required when needed. For products, the importance of this component has led in the past decade to the spectacular rise of the logistics industry, especially since the advent of "just in time" manufacturing and service delivery. For services, the importance of this component has in part led to rise of the "outsourcing industry".

Competitive Pricing: The acquisition of products and services at the most competitive prices possible. If an organization pays less for its inputs than its competition, then it has a competitive advantage. If it pays more, it is put at a competitive disadvantage.

If any of these three key components are deficient, the company will suffer and possibly fail in its business.

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