The Sourcing Process

Organisations need to be able to count on their suppliers for the products and services needed to deliver its own services, otherwise the supply chain may fail.

Many small to medium-sized enterprises repeatedly buy their supplies from the same small number of suppliers because they believe they don’t have the time or the resources to make any changes. They consider the current suppliers to be satisfactory to support day-to-day operations. The performance of these suppliers is often not measured in a meaningful way and the SMEs are not if value for money is being obtained.

The more successful organisations invest in a proper sourcing process and enjoy significant benefits. There are a number of steps that should be taken before initiating the order, and the sourcing process continues after the products or services are actually delivered.

The first step is to determine what the organisation actually requires in terms of goods and services to fulfil its objectives. This identification of need will cover not only the short-term but annual or sometimes longer periods. The original requests should come from the end users. Procurement teams should bring their own knowledge of the marketplace to the sourcing process. This can be a very valuable contribution and may make determination of needs more effective.

It is beneficial to always explore the supply market. Before seeking new suppliers, it is essential to consider all alternative sources. Potential new suppliers may be invited to visit your organisation to develop a better understanding of its needs. However, it is essential to undertake a formal process, such as supplier appraisal, to gain assurance that the supplier has the competence and capacity to fulfil your requirements. When completed, the supplier may be added to an approved list and this will generate a greater degree of competition for your goods and services and this is likely to result in better prices and delivery terms.

To develop a sourcing strategy, it is necessary to establish a working group who will be directly affected by a change in supplier or the introduction of new products or services. It will be necessary to generate a consensus for a specific procurement activity or strategy among the group members by highlighting the benefits of this proposed change.

When you are ready to notify suppliers that you are looking to buy particular goods or services, you can send a Request for Quotation (RFQ) or a Request for Proposal (RFP) to potential or approved suppliers. An RFQ usually includes the product or service specification, delivery and service requirements, and legal and financial terms and conditions. It may also list the criteria to be used to evaluate bids. The more information contained in the RFQ, the greater the chances of finding a suitable supplier with whom you can work on a partnership basis.

Once the deadline has passed, it’s important to draw up a shortlist of the bids which meet all the criteria. In the case of RFQs for goods, the supplier that has met all of the specification and other criteria and has the lowest cost, is normally awarded the contract. For RFPs for services, the evaluation is on a scored basis and the financial and technical evaluations are combined to identify the successful bidder. In the latter case there is likely to be negotiations and there must be managed in accordance with procedures established in the RFP.

In both cases, the procurement team will manage the tender process but must develop a tender evaluation report with a final selection recommendation for award of contract. This is submitted to the approved authority in the organisation for signoff in accord with the approval process.

Following the award decision, it is time to notify the successful supplier and forward the contract for signature. Implementation plans may vary according to any changes that have been agreed but it will be beneficial to involve the supplier in this process. It is always beneficial to develop a supplier relationship structure as this will facilitate completion of the contract.

It is really important for the sourcing process to include ways to measure the impact of the supply agreement. You will wish to track its progress, particularly with regard to how effective a supplier is in providing products on time, of the right quality and at the best price. You will also need to ascertain whether value for money is being achieved. Value for money is the fundamental expectation of all organisations in respect of the procurement function.