The terms “sourcing” and “supplier discovery” are often used interchangeably in Procurement and Supply Chain Management, but they have distinct meanings and scopes. Here’s a detailed breakdown of each term, their overlaps, and the reasons behind the vagueness in their usage.
Sourcing
Sourcing refers to the process of identifying, evaluating, and engaging suppliers for acquiring goods or services. It encompasses a broad range of activities that ensure the right suppliers are selected to meet the company’s needs at the best possible cost and quality.
What it involves:
- Market Research: Understanding the supply market and potential suppliers.
- Supplier Evaluation: Assessing suppliers based on criteria like price, quality, capacity, reliability, and service.
- Negotiation: Discussing terms and conditions with suppliers to secure the best deal.
- Contracting: Formalizing agreements with selected suppliers.
- Supplier Management: Monitoring and managing supplier performance post-selection.
An alternate term often used is Supplier Lifecycle Management.
Supplier Discovery
Definition: Supplier discovery is a subset of the sourcing process. It specifically involves the initial stage of identifying and finding potential suppliers who can meet the company’s requirements. This is often the first step in the broader sourcing process.
What it involves:
- Searching for Suppliers: Using databases, industry networks, trade shows, online platforms, and other resources to find potential suppliers.
- Initial Screening: Conducting preliminary assessments to shortlist suppliers who meet basic criteria.
Overlaps
There is a significant overlap between sourcing and supplier discovery, especially in the initial phases. Supplier discovery can be seen as a crucial component of the sourcing process. The overlap occurs in the activities related to identifying and initially evaluating suppliers.
Reasons for Lack of Differentiation
- Interchangeable Usage: In many organisations, the terms are used interchangeably because supplier discovery is inherently part of sourcing. This leads to a lack of clear distinction in everyday language.
- Evolving Terminology: The field of supply chain management continuously evolves, and new terminologies emerge. The dynamic nature of the field contributes to overlapping and sometimes vague definitions.
- Context-Specific Definitions: Different industries or companies might have their own specific definitions and processes. What one company calls sourcing might include all aspects of supplier management, while another might separate them more distinctly.
- Technology and Tools: Advances in technology have blurred the lines. For instance, e-sourcing platforms often suggest they offer supplier discovery and broader sourcing activities, making it harder to distinguish between the two.
In summary, while supplier discovery is a specific activity within the broader scope of sourcing, the two terms are often used interchangeably due to their overlapping activities, the evolution of supply chain terminology, and varying organisational practices. Understanding the context and specific practices of an organisation can help clarify the distinction between these terms.
A Focus on Discovery
While all elements of supplier lifecycle management are important, the supplier discovery phase is particularly critical as it lays the groundwork for successful supplier engagement. It directly influences the quality, cost efficiency, risk profile, strategic positioning, and flexibility of the company’s supply chain. By prioritising and investing in a robust supplier discovery process, companies can ensure they build a solid foundation for long-term success and resilience in their supply chain operations.
1. Foundation for Quality and Reliability
The initial phase of supplier discovery sets the foundation for the entire supplier lifecycle. By identifying and vetting potential suppliers meticulously, a company ensures that it partners with vendors who can meet its quality and reliability standards. This initial screening helps in filtering out suppliers that may pose risks due to subpar quality or unreliable delivery schedules.
2. Cost Efficiency and Value
Effective supplier discovery can significantly impact what a company pays for the product or service. By identifying a diverse pool of suppliers, companies can engage in competitive bidding, driving down costs and ensuring they receive the best value for their money. It also opens opportunities to discover innovative suppliers who can offer better terms or unique value propositions. Think all the benefits of multi-sourcing with none of the downsides!
3. Risk Mitigation
Early identification and thorough vetting of suppliers can mitigate risks associated with supply chain disruptions, compliance issues, and financial instability. By conducting comprehensive background checks and risk assessments during the discovery phase, companies can avoid potential pitfalls that might arise from engaging with unsuitable suppliers.
4. Strategic Advantage
In highly competitive markets, the ability to discover and engage with new and innovative suppliers quickly can provide a significant strategic advantage. Supplier discovery allows companies to stay ahead of industry trends, source cutting-edge materials or services, and respond swiftly to changing market demands.
5. Long-Term Relationships
Building a robust supplier base from the start fosters long-term, mutually beneficial relationships. Suppliers that are carefully chosen through a diligent discovery process are more likely to align with the company’s values and goals, paving the way for stronger collaboration and partnership.
6. Flexibility and Agility
A well-executed supplier discovery process equips a company with a diverse and flexible supplier base. This diversity allows for greater agility in responding to supply chain disruptions, market changes, or new product development needs. Companies can pivot more easily when they have a well-rounded pool of suppliers to draw from.
