Sourcing strategy options

Sourcing strategies determine how your company will ensure supply of a particular product or service. Typically development of a sourcing strategy includes consideration for where to purchase, considering demand and supply situations, while minimising risk and costs.

Potential sourcing strategies include:

  • Direct negotiations,
  • Insourcing,
  • Outsourcing,
  • Competitive bidding (RFx, Reverse Auction),
  • Panel contracts (having a restricted number of suppliers signed up to your terms for one procurement category),
  • Volume aggregation (using fewer suppliers), and
  • Global sourcing (also low cost country sourcing).

Several factors go into selecting a sourcing strategy such as:

  • What the supply market looks like,
  • Volatility of supply/prices, and
  • How important the product/service is to our company. (Often there are four groups in which products are divided; critical, routine, leverage and bottleneck products).

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