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,
- 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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