2. Objectives Today
• Definition of Sourcing
• The sourcing process
• Sourcing information
- analysis of market conditions
- locating supplier
- supplier appraisal
• Discussion
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3. What is sourcing?
• Sourcing is the process of identifying, selecting
and developing supplier.
• Sourcing is a key purchasing activity.
• Sourcing can be either at tactical and
operational or strategic levels.
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4. What is sourcing?
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Tactical Sourcing Environment Strategic Sourcing Environment
Clearly defined requirements and
specifications
Development of a deep
understanding of requirements
Open bid process with little or no
ability for suppliers to offer
alternative designs or
specifications
Development of a deep
understanding of the supply
industry, product and service
offerings and performance
drivers of key suppliers
Purchase price focus Long-term relationship focus
Non critical items Critical items
Table 1: Comparison of tactical and strategic sourcing business
Adapted: Lysons and Gillingham (2003, p.367)
5. The Sourcing Process
1. Identify or re-evaluate needs
2. Define or evaluate users’ requirements
3. Decide to make a buy
4. Identify type of purchase
- Straight rebuy or routine purchase
- A modified rebuy (Changed to existing supplier)
- A new buy (New user need)
5. Conduct market analysis
6. Identify possible suppliers
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6. The Sourcing Process
7. Prescreen or prequalify possible suppliers
8. Evaluate the remaining supply base
9. Request for proposal/quotation/tender
10. Choose supplier
11. Negotiation
12. Deliver product/performance
13. Post purchase/make performance evaluation
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7. Sourcing Information
• Information is the key for a successful
sourcing process.
• The information is important to determine:
- When to buy (the right timing)
- Where to buy (location)
- Who to buy (which supplier)
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8. Sourcing Information
• Information can be obtained from:
- analysis of market conditions
- locating supplier sources
- supplier assessment
- supplier historical performance
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9. Sourcing Information
ANALYSIS OF MARKET CONDITIONS
•What is market?
- a place where goods and services are brought
and sold.
- large groups of buyers and sellers of wide
classes of goods.
- demand and supply of a single class of
community.
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10. Sourcing Information
ANALYSIS OF MARKET CONDITIONS
•What is the analysis of market conditions
important to sourcing?
Forecasting the long-term demand for the
product.
It assists in forecasting the price trends of
brought-out items and how material costs are
likely to affect production costs and selling
prices.
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11. Sourcing Information
It indicates what alternative goods and supply
sources are available – it might be more
economical to source items from abroad.
Information relating to pay trends, commodity
prices, political factors and the like can assist
in deciding whether to adopt a strategy of
forward buying and stock piling.
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12. Sourcing Information
LOCATING SUPPLIERS
•Suppliers can be located by checking a wide range of
sources.
•This process has been made faster and easier by the
World Wide Web.
•Some unions or professional societies provide
database for sourcing suppliers.
•Access to such databases may be free and unrestricted
or subscriber only.
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13. Sourcing Information
• However, there maybe several problems that
limit the value of these online searchable
databases:
The effort and time required to access several
databases
User friendliness of the search engine
The quality data content – time out-of-date,
incorrect data content or basic data only
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14. Sourcing Information
LOCATING SUPPLIERS
•Other useful ways to locate suppliers include:-
Salesperson – the usefulness salespeople is
dependent on their knowledge of the product they are
seeking to promote.
Exhibitions – provide an opportunity to compare
competing products, meet representatives of suppliers
and attend presentations by exhibitors and exhibition
catalogues.
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15. Sourcing Information
Trade journals – provide buyers not only with
information regarding new products,
substitute materials, trade gossip and keeps
buyers informed about changes in the policies
of suppliers.
Informal exchange of information between
purchasing and other professionals.
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17. Sourcing Information
• Five methods used in assessing supplier
capability in this connection are based on:-
Past performance – for existing supplier
Reputation – word of mouth
Visit and appraisal – visit the supplier in order to
make assessment of quality capability
Third party certification – hire third party to assess
the supplier
Evaluate of sample product
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19. Challenges of Global Sourcing in Malaysia – Risk
Assessing in Construction Industry
• Extensive and efficient infrastructure
• High quality of telecommunication network
• Legal system in protecting buyers
• Data security and intellectual property
protection
• Geopolitical distance between supplier and
customer
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