Sourcing Strategy Basics and Types

Sourcing strategy enables organizations to source best quality products or services at competitive rates.

A successful sourcing strategy requires a thorough understanding of a company’s business strategy, the resources required to deliver that strategy, the market forces and the unique risks within the company associated with implementing specific approaches. A periodic review of the sourcing strategy ensures achievement of desired results and continued alignment with business objectives. Some of the sourcing strategies that are used in supply chain management today include:

• Single sourcing: A method whereby a purchased part is supplied by only one supplier. A JIT manufacturer will frequently have only one supplier for a purchased part so that close relationships can be established with a smaller number of suppliers. These close relationships (and mutual interdependence) foster high quality, reliability, short lead times, and cooperative action.
• Multisourcing: Procurement of a good or service from more than one independent supplier. Companies may use it sometimes to induce healthy competition between the suppliers in order to achieve higher quality and lower price.
• Outsourcing: The process of having suppliers provide goods and services that were previously provided internally. Outsourcing involves substitution—the replacement of internal capacity and production by that of the supplier.
• Insourcing: The goods or services are developed internally.

Important guidelines for sourcing strategy

• Ensure access to technological innovations – Manufacturers should build up their relationships with suppliers to ensure continuing access to new technologies, while also strengthening their own innovation process.
• Reduce costs together with suppliers – Along with technical levers like standardization, manufacturers should increasingly integrate with suppliers to accelerate cost reduction efforts.
• Standardize – Manufacturers should continue to move toward standardized modules and components. Furthermore, they should frontload their development efforts to increase product reliability and durability. Engineering departments should be arranged globally, with decision-making authority on a global level.