SOURCING MANAGEMENT

CHAPTER 2

WHAT IS SOURCING ?
Sourcing is the process of taking advantage of purchasing
opportunities by continually reviewing current needs against
purchasing opportunities .
In this chapter we will learn how to generate and document
requirements , convey them them to suppliers and use them in
your supplier selection process

CREATING AND ORGANIZING REQUIREMENT

New requirements are developed by the using department (the
department that will actually receive the goods and services ).
Specifications and subsequent changes for the standard
products and services are usually documented and filed by the
DOCUMENT CONTROL section responsible for physically
maintaining the organization's specification.
However, there are no formal processes within the organization
for developing specifications, it is the responsibility of the
REQUISITIONER (the individual initiating the request)

CONTINUED.
a) ROLES AND RESPONSIBILITIES : the responsibilty for
creating and maintaining specifications generally resides
with the user or the using department .
b) PROJECT TEAM: the development of complex
requirements often takes a project oriented nature . This
team is composed of technical experts, users, and
ofcourse, the procurement department, consultants are
often involved to assist them . This team makes the final
selection

CONTINUED..
c) CUSTOMER INPUT: in situations where the
components or service being performed are critical to the
operation of the organization , customers play an
important role in the development of specification.
d) OTHER INPUTS: besides the internal user or engineer,
the most common additional information detailing the
specification comes from the existing or potential
suppliers of the item to be purchased .

DEVELOPING SPECIFICATION & FORMAT

Written specification provides parameters or standards that a
supplier must meet for the purchase to be accepted by the
buyer.
Having a TIGHT specification , one that clearly and completely
defines the organizations intended purchase, helps prevent
problems later on .
Specific formats vary from organization to organization and can
range from a variety of written descriptions to detailed drawings
or even actual samples .
There are two elements to consider when developing a
specification. First the actual description of the product, what it
looks like or how it functions and second element is the
evaluation of performance like measures of quality, standards,
benchmarking .

SPECIFICATION TRAPS
Unnecessarily stricter specifications than actual
performance would simply add cost with out benefits.
They may eliminate potential suppliers who are unable
to perform to the higher requirements and thus
eliminate price reducing competition.
Specifications that are too loose or open, or with
important details missing , tends to invite unacceptable
quality and can create costly risks .

LOCATING AND DEVELOPING SOURCES

OF SUPPLY
The nature of source from which the purchase is made
can vary widely and is dependent on the nature of
purchase item, the industry in which the purchase is
being made and the size of purchase.
The procurement professionals must develop an
understanding of how various supplier types can affect
the sourcing decisions .

LOCATING AND DEVELOPING SOURCES OF

SUPPLY
LOCAL , DOMESTIC OR INTERNATIONAL:
Local supplier can provide faster response time as well as low
freight costs.
Where as, buying organizations can develop greater competition
simply by expanding their geographical range of its sourcing
providing them with better pricing and wider choices .
Lead time , inventory cost, fluctuation in currency rates ,
communication gaps, shipping cost, duties etc should be
considered which going for global sourcing

TYPES OF COMPETITION
1. OPEN COMPETITION:
multiple suppliers are available to fill your requirements
and they are willing to negotiate because of tough
competition .
2. SOLE SOURCE:
they are the only source available to meet buyers
requirement . They are often the result of government
created monopoly, such as local utility . Here the buyers
negotiation power is weak.

TYPES OF COMPETITION CONTINUED..

3. TECHNICAL OR LIMITED SOURCE:
It is also known as limited competition .it is because only
limited suppliers are available for a particular product due
to patents or limited production capability.
4. PARTNERSHIP/ JOINT VENTURE:
on occasions , organizations will form a joint venture to
create a source of supply to jointly share the expenses of
developing new technology.

LOCATING SUITABLE SUPPLIERS

There are so many ways to locate potential suppliers .

It ranges from using online search engines .
Using business directories and industrial guides.
Calling colleagues or
Attending network activities.

DETERMINING CHANGING MARKET

PLACE FACTORS
a. NATURE OF COMPETITION: the nature of competition in any
particular market varies .for example : the product being
purchased is controlled by patented manufacturing technology
,so their will be unlikely any competition.
b. TECHNOLOGY: the buyer should consider ways to continuously
monitor existing suppliers and their technological position
relative to their competitor so that the ongoing changes do not
adversely affect their organizations own competitive position
c. PERFORMANCE: suppliers my some time sacrifice the quality,
may have delivery delays ,cut in services and quality failures
due to economic hardships .

OBTAINING BIDS AND PROPOSALS

They are integral elements in the procurement
process .
When a clear specification exists the buyer will solicit a
competitive bid or request for quotation (RFQ)

BIDDING GUIDELINES
WHAT IS BIDDING?
it is a competitive process that enables the buyers
to leverage several potential sources of supply
through a single activity to obtain the most
favorable business terms .

CONTINUED...
A number of conditions should be considered in order to
be successful:
a. PROVIDING CLEAR CONTENT : A bid should provide
sufficient information about the requirement so that the
supplier will be able to offer the exact pricing and other
onformation to successfully obtain the purchase order.
b. ENSURE RESONSIBLE COMPETITION: the buyer should
prequalify the suppliers to ensure that the bids returned will be
responsive to the organizational needs.
c. HOLD AN OPEN PREBID CONFERENCE: where all the
potential suppliers have the opportunity to receive advance
briefing on the bid

FORMULATING A BID
SEALED BID: typically used in government related
contracting , the sealed bid is an offer submitted in a
sealed envelope that is opened with the other bids at a
previously designated time
POSTED OFFER TO BUY: bids posted in public or
online , general public has open access to it .
AUTOMATED BIDDING: it is common today to
generate automated bids using a number of computer
based processes

Thank you