What Does Sourcing Mean? (With Types and Tips)

By Indeed Editorial Team

Published March 25, 2022

Acquiring resources and ensuring optimal value for a budget requires time, research and effective strategies to achieve success. Recognizing the processes and methods involved with sourcing provides a greater understanding of how to source effectively and the factors that influence supply chains. If you want to ensure cost effectiveness within your business processes, it may be helpful to learn more about sourcing. In this article, we define sourcing, list its various types, describe how to source effectively and discuss when to use it.

What does sourcing mean?

Sourcing is the process of and decisions involved with locating and selecting businesses, suppliers, professionals and systems based on a set of needs and criteria. Sourcing aims to identify, assess and negotiate the acquisition of a company's required materials and other assets. The sourcing process includes research, communication, negotiation and closing contracts with vendors or candidates.

Related: How To Write a Sourcing Manager Resume (With Template and Example)

Why is sourcing important?

Sourcing is important to ensure that supplies or resources obtained provide their desired functions. The sourcing process also establishes which suppliers and channels offer options that adhere to a team's or entire company's budget and quality standards of an organization. The research involved with sourcing allows an organization to identify and secure the most financially efficient way of acquiring materials.

8 types of sourcing

Here are eight types of sourcing that an organization may implement:

1. Outsourcing

Outsourcing is the process of contracting an external organization to provide supplies or services. For example, organizations sometimes outsource services or goods from foreign countries at lower rates. Outsourcing requires the drafting, negotiating and closing of various contracts between organizations and providers.

Related: Outsourcing: What It Is and How It Works

2. Insourcing

Insourcing refers to an organization utilizing its own internal personnel and resources to attain previously outsourced services. Insourcing can eliminate fees or delays that may occur with outsourcing and grant an organization a greater level of control over its processes and production of resources. This method involves the hiring and training of new personnel or entire departments.

3. Single sourcing

Single sourcing entails a company selecting only one supplier to provide their materials despite having many options. This can offer product exclusivity and distinguish products from competitors. It also reduces the amount of negotiation and contracts required to attain resources by limiting the number of suppliers and vendors.

Related: What Is Single Sourcing? (Plus Benefits and 7 Examples)

4. Near sourcing

Near sourcing occurs when a business moves its production facilities within closer proximity to the distribution of its end product. This reduces time spent waiting during supply chain operations and can reduce the cost of transportation of materials and goods. It also increases control over a production process and negates the risk of delays or transportation challenges.

5. Vertical integration

Vertical integration is an arrangement where a company acquires and controls its own supply chain. This process takes the operations typically completed by two separate companies and places them under the control of one organization. This method also optimizes the amount of control and fixes the cost of production stages and resources.

6. Joint venture

Sourcing through a joint venture consists of an organization joining with another company to combine resources and contribute resources together. A joint venture usually involves an organization investing in another company's equity share as a way of receiving their supply and productions. It aims to create a mutually beneficial relationship and exchange for both organizations.

7. Recruiting

Companies also source potential job candidates when employing sourcing techniques. Recruiters may use job sites and sourcing contacts to identify professionals who may work for them. Sourcing for job candidates rather than waiting for applications can increase the efficiency and quality of hiring decisions by finding candidates that already possess necessary skills, interests and experience.

Related: Sourcing vs. Recruiting: Definitions and Key Differences

8. Wholesale

Wholesale sourcing is a method in which a retailer or distributor purchases products in large quantities at discounted rates. Wholesale sourcing requires the ability to store large quantities of materials until you can use or resell them. Many large-scale operations use wholesale sourcing to decrease costs and acquire their resources in bulk.

Tips for effective sourcing

Here are some tips you can use to develop and practice efficient sourcing processes:

  • Plan a sourcing strateg**y:** Sourcing specialists and managers can utilize a number of sourcing strategy models. Having a structured and consistent model to display and compare your research of different sources makes the decision process easier and more logically consistent.

  • Network: As a recruiter or a sourcing specialist, it's helpful to know and have relationships with others involved in the supply chain or with potential job candidates. Establishing a network with those in various areas can provide insight about changes, opportunities and procedures that may affect an entire organization.

  • Consider locat**i**on: Sourcing and organizing supply chains rely heavily on location. It's important to calculate and consider the time, cost and risk of transportation of supplies between facilities when identifying potential suppliers.

  • Constantly reevaluate: The market for materials and resources fluctuates constantly due to supply and demand. Evaluating changes in prices and quality throughout your production processes and constantly sourcing for better options can help identify areas in which you're committing extra spending.

When to use sourcing

Organizations use sourcing processes for a wide range of purposes. Here are some instances of when to use sourcing:

Hiring staff

When an organization aims to acquire a larger staff and integrate new members, they may use sourcing and recruiting. Actively seeking and recruiting members expedites the hiring and training process by finding candidates who already understand the role. Searching for candidates can provide a better understanding of the skills and qualifications for the role and highlight the optimal options available.

Creating new departments

Organizations working to add and develop new departments or areas of specialization use sourcing to find both resources and personnel. Compiling a list of resources and criteria necessary for beginning a new department can help in the planning and acquisition stages. Sourcing is important in this stage to ensure that the new department can meet the financial and quality standards of the organization creating it.

Reducing supply chain budgets

Sourcing may be helpful when searching for ways to reduce spending in a supply chain budget. Seeking new suppliers or implementing internal production changes through sourcing can identify areas of overspending or additional fees. If budget changes become necessary, it can help to evaluate and research new sourcing methods and options.

Offering new services or products

New services and products require additional or updated materials. Researching and sourcing new materials helps an organization in the planning, pricing and development stages. Finding and contracting suppliers, manufacturers and distributors can help with this process.

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