Five Types of Sourcing: A Practical Framework

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Sourcing, inherently, is designed to help organizations save money through the purchasing of services or products provided by an external service provider. But finding the right vendors is not as simple as it sounds. Whether you are buying or selling office supplies or outsourcing entire information technology functions, sourcing can become a liability if not properly planned and executed.

The Sourcing Continuum is a way to visualize and understand the factors and risks associated with managing sourcing relationships. This model (Figure 1) identifies the five types of sourcing as follows:

  • Purchasing: buying simple products or services from an external vendor
  • Project-based Developing: an agreement to purchase a specific set of deliverable items at an agreed price and defined schedule
  • Outtasking: turning over a narrowly defined function or activity of the business to the external vendor
  • Selecting Outsourcing: turning over an entire fuction or activity of the business to the external vendor
  • Business Process Outsourcing: turning over an entire business process to the external vendor

The Sourcing Continuum

Generally, the types of contracts on the left of the continuum are less complex and risky if properly designed and implemented. As we move across the continuum from left to right, the complexity and risk levels increase, and consequently, the need for oversight becomes essential in meeting the increased responsibilities and scope of these agreements.

Successful outsourcing requires application of the three Cs: cross-functional competence, collaboration, and communications, and when applied consistently by all parties – buyers and sellers alike – involved in the sourcing process, organizations can achieve improved outcomes.

Want to learn more about sourcing? Download a whitepaper on The Sourcing Continuum.

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