What is the sourcing process in supply chain management?

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As the need for an external supplier arises, the procurement team has to identify relevant vendors. This occurs through sourcing, making it the first step in the supply chain and the source-to-pay cycle.

As per a given need, the procurement team researches suppliers and assesses their performance history thoroughly. This involves evaluating all risks associated with suppliers as well - their financial health, potential geopolitical problems, compliance issues, reputational problems, etc. They can send Requests for Information (RFIs) as well if necessary.

As the team consolidates a list of suppliers and a PR is received, the personnel then send RFQs or RFPs to invite bids and find solutions. The sourcing process has to involve finding the middle ground between product quality and affordability. The vendor with the lowest risk and the most reasonable price is selected, and the products are sourced from them. Negotiation and contract establishment are also parts of the sourcing process.

Effective sourcing is crucial to efficient vendor management. Manual processes can’t give sufficient insight into suppliers’ performances, making the process obscure and risky. For this purpose, organizations are increasingly shifting to vendor management software to bring all their supply-chain activities to one data-driven platform.

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