Do you have the right sourcing model? 10 considerations

When we start discussing the sourcing models, a lot of concepts and denominations are raised: single source, multi-source, gain share, mutual, joint venture, social impact bounds, offshore, nearshore, insourcing, outsourcing, shared services, service integration, internally managed, mixed internal and outsourced, external supplier, multi-country, contractor, subcontractors, anonymous sourcing, direct sourcing, indirect sourcing, and so on.

 

There are many different concepts and many different definitions. In further articles, we will study the dimensions on which the different sourcing models are relying and what their differences and advantages are, how to choose the sourcing models, what the parameters are to consider, the measures and controls to put in place, and eventually study particular models like outsourcing.

 

But the objective of this article is to set up the main considerations that are underlying the choice of a sourcing model. Choosing your sourcing model depends first upon what you can do, your time or market constraints, your power position and your boundaries. Secondly it depends upon what are your sourcing expectations in terms of strategy and capabilities. You will also choose based on what you want to source or procure. The considerations are ranked in that order.

 

• Power relation: Where is your place in the power mapping? Are you in a powerful position or not? Do you have a standard commodity or do you have high tech? Are you leading the supply chain or undergoing it? What do you represent for the source?

 

• Products and services dependence and scarcity: Are the products you are requesting standard or tailor made? Do you design your needs so that you increase competition going to more standard products and avoiding binding products? What is the scarcity of the researched product or service? Is it critical to your business? Does it have to be developed? Was your research and development and requesting internal customer specified as a function of a product/service or is it openly specified?

 

• Source dependency: Do you depend on the source? Will you reduce or increase your dependence? What are the gains? Is it a commodity or critical? Do you master the area of the service/product? Can you easily switch sources?

 

• Cost tolerance: Is cost the first factor? Do you consider only cost, return on investment and Total cost of ownership (TCO)? Can you accept higher costs to have more flexibility in your choices? Can you extend these choices financially? Do you want to commonly invest or not with the source? Will you make it a common center of profit?

 

• Time to market: What is the timing foreseen? Is it urgent, critical, important or do you have time? Can you wait to deeply analyze the market? What about the delivery? Is it needed fast or did you anticipate the need?

 

• Risks and opportunities: What are the risks you are ready to take? Which opportunity do you want to keep open or accept to close? Do you want to build a collaboration? Partnership? Do you want to share gains and risks?

 

• Expertise: Do you innovate? Do you have expertise in the area you will supply? Can you build expertise or hire? Can you compare? Can you increase your expertise to better understand the files? Do you have the market knowledge? Do you need the expertise of the source? Do you want to develop with the source? Or perhaps you just want the delivery as it is not critical and don’t need to know?

 

• Quality assurance: What quality and control do you expect? Which measure and control would you like to put in place?

 

• The strategy and core business: Did you map your business? Do you specify what is your core business and what is not? Do you want to keep extended control on specific areas? Do you want to share your strategy and enter some partnerships? Or simplify your organization?

 

• The social and cultural factors: What will be the consequence of your choice for the unions and people? For their motivation and commitment? Do you source with another culture? Did you check that culture? Do you understand it? Is it an eventual asset?

 

If expertise, market/industry knowledge and soundly mastering the methodology would drastically help to make a final decision, going over these considerations are a first but essential filter. Don’t pre-filter the possibilities prior to this exercise. You can sometimes be surprised. A good tool if mastered is the make-or-buy exercise. If used with objectivity and adequate organization, with market and industry expertise, it will bring you the needed parameters to make your choice. 

Anyway, when you consider these points, the answers are obviously different if you analyze, for example, your furniture or your office supply, your raw materials or your IT. These points of attention should be considered when choosing your sourcing model. They will help you clearly define which model is surely not the right one, which you can or may consider, and sometimes which is the optimal choice.

But first of all, we should consider the underlying dimensions of the sourcing models.