1. Sourcing
CONSTRUCTION SUPPLY CHAIN
MANAGEMENT (MGT60803/QSB 2433)

2. Objectives Today
• Definition of Sourcing
• The sourcing process
• Sourcing information
- analysis of market conditions
- locating supplier
- supplier appraisal
• Discussion
2

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.
• Most of the time, sourcing decision is done by
high-level management.
3

4. What is sourcing?
4
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 Decision
Sourcing decisions are high-level, often strategic
decisions that address:
•What will use resources within the firm
•What will be provided by supply chain partners
5

6. The Sourcing Decision
• Insourcing – The use of resources within the
firm to provide products or services
• Outsourcing – The use of supply chain
partners to provide products or services
** Make-or-Buy decision
6

7. Total Cost Analysis
• A process by which a firm seeks to identify
and quantify all of the major costs associated
with various sourcing options.
• Direct costs – costs that are tied directly to
the level of operations or supply chain
activities.
• Indirect costs – costs that are not tied directly
to the level of operations or supply chain
activities.
7

8. Insourcing and Outsourcing Costs
8
Insourcing Outsourcing

9. The Sourcing Process
1. Identify or re-evaluate needs
2. Define or evaluate users’ requirements
3. Decide to make or 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
9

10. 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
10

11. 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)
11

12. Sourcing Information
• Information can be obtained from:
- analysis of market conditions
- locating supplier sources
- supplier assessment
- supplier historical performance
12

13. 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.
13

14. 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.
14

15. 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.
15

16. 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.
16

17. 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
17

18. 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.
18

19. 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.
19

20. Sourcing Information
SUPPLIER APPRAISAL
•Supplier appraisal is situational. What to
appraise is related to the requirements of the
particular purchaser.
20

21. 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
21

22. The End
22