Sourcing - What It Is and What It Can Do
This concept refers to the procurement of goods, materials and commodities by a company in order to maintain its production and remain competitive. There are different strategies that ensure long-term advantages for the company. The following is about the different sourcing strategies, as well as the general advantages and disadvantages of the concept.
What Is Sourcing?
The term “Sourcing” is derived from the English “source” and refers to the creation of services in value chains. This includes the management of service production from internal and external sources for one or more companies. Sourcing concepts also relate to the supply of companies with materials, goods, parts or assemblies. Over time, the definition of the term has been expanded to include all the resources a company needs to create value. Human capital is now also included.
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Which Procurement Strategies (Sourcing Strategies) Are There?
One differentiates different kinds of Sourcing:
- Single Sourcing
- Dual Sourcing
- Multiple Sourcing
- Global Sourcing
- Local Sourcing or Onshoring
- Nearshoring
In single sourcing, procurement is concentrated on a single supplier; in dual sourcing, a second partner is added. In multiple sourcing, a company draws on a network of service providers, which offers greater flexibility and more favorable purchasing conditions.
Global sourcing is the international selection of suppliers. This is done with a view to gaining advantages in terms of quality, costs, innovation or flexibility. Local sourcing or onshoring, on the other hand, involves procurement in the local environment of the company. Nearshoring is the procurement of services within the continent on which the services were previously performed. One variant of this is captive nearshoring. This involves sourcing between parts of a company.
How Does Active Sourcing Work?
It is a recruiting method in which companies specifically search for, approach and recruit suitable candidates for a vacant position. The approach takes place on different channels. These include the company’s own candidate pool, business networks on the Internet and trade fairs. Another name for this strategy is Effective Sourcing.
The basis for this concept is sound research to find a candidate for a specific position and to get him or her interested. The strategy makes the recruitment process more efficient and saves costs. It can also be used to reach passive candidates from the existing talent pool, often bypassing a job ad.
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What Is Direct Sourcing?
It is a trend that is enjoying a steady rise in popularity. It involves tactics used to directly approach interesting candidates by recruiters. The first step is usually a search on a business network such as LinkedIn or Xing. The second step is to approach the candidate: Either the recruiter addresses him or her directly or establishes contact with him or her via a common contact from the network.
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What Are The Advantages and Disadvantages Of Sourcing?
Advantages:
- Cost efficiency
- Access to more suppliers
- Increase in quality
- Focus on the core competencies of permanent employees
- Increase of a company’s room for maneuver
- Increase of flexibility.
The main benefit of it is cost savings for companies. The concept gives them the opportunity to obtain high-quality materials or services at an unbeatable price. It provides the ability to compare prices and choose the best deal. This can lead to significant savings over time. In addition, sourcing provides access to a wide range of vendors. This is especially attractive when you need certain materials or services that are not available from local, or known, suppliers. Sourcing can increase quality in a company and allows employees to focus on their core competencies.
In the area of human resources, it expands the scope of action of companies. It gives them access to specialists who are not actively looking or who have not yet been known to the company. Here, too, the concept saves costs and time. A suitable candidate is often found more quickly than in a traditional, lengthy application process.
It increases the flexibility and scope of action of companies. For example, if a company needs software development, it can outsource the work instead of hiring someone with those specific skills on a permanent basis. This way, the company only pays for the work when it needs it and doesn’t have to commit long-term resources to it.
Disadvantages:
- Disclosure of internal information to external service providers
- Outsourcing of know-how
- Quality control is difficult.
One disadvantage of the concept is that the company gives external service providers insight into internal processes and cedes control. It is often accompanied by high communication and coordination costs. Know-how may be outsourced from the company if certain tasks are only performed by external service providers. In the case of an external service provider, it is also difficult to assess the quality of its further development. If the service provider performs poorly, this reflects negatively on the company.
How Does IT Sourcing Work?
IT outsourcing refers to the active outsourcing of IT tasks. It is possible to outsource individual tasks as well as task complexes. Freelancers or IT companies then perform these tasks for the company in return for payment. It doesn’t matter whether it’s simple things like IT support or complex programming tasks.
For IT sourcing to be successful, it is important to clearly define the tasks that arise within the company. Then decide which of these tasks must be handled internally and which can be outsourced. Then it’s time to look for suitable service providers to take over the tasks.
The use of external service providers is particularly worthwhile in the IT sector. This sector is particularly fast-moving, and so it is simply expensive to keep employees up to date with the latest technology or to permanently hire new employees who are familiar with certain things. More than in other sectors, the level of quality of work in the IT sector is significantly higher due to outsourcing. Here, one buys the services of motivated specialists who have extensive know-how in a particular field.
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FAQs
What Is Sourcing?
It is about obtaining materials or services from external providers. By outsourcing certain services, companies save time, money and resources. In addition, the concept increases options for a company so that it can obtain better or cheaper goods or services.
What Are The Sourcing Strategies?
There are different sourcing strategies for procuring goods and materials, including targeting one or more suppliers. Global sourcing involves selecting suppliers worldwide, while local sourcing or onshoring involves selecting suppliers locally. Nearshoring refers to the sourcing of services on the continent where the services were previously performed.
How Does Active Sourcing Work?
It is a recruiting method in which companies specifically search for, approach and recruit suitable candidates for a position. The approach is made through various channels. This process makes recruiting more efficient and saves costs.
It is about obtaining materials or services from external providers. By outsourcing certain services, companies save time, money and resources. In addition, the concept increases options for a company so that it can obtain better or cheaper goods or services.
There are different sourcing strategies for procuring goods and materials, including targeting one or more suppliers. Global sourcing involves selecting suppliers worldwide, while local sourcing or onshoring involves selecting suppliers locally. Nearshoring refers to the sourcing of services on the continent where the services were previously performed.
It is a recruiting method in which companies specifically search for, approach and recruit suitable candidates for a position. The approach is made through various channels. This process makes recruiting more efficient and saves costs.
