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Sourcing A-Z: Demystifying Key Terminologies for Modern Businesses
- Team Sourcy
- Jun 26
- 9 min read
Updated: Jul 3
In today's dynamic global marketplace, effective sourcing is a cornerstone of business success. From identifying the best suppliers to negotiating favorable terms, a solid understanding of sourcing terminology is crucial. See this as the alphabet song for some of the key sourcing terminologies and industry jargons, offering clear definitions, concise elaborations, and practical examples to help you navigate the complex world of sourcing. Without further ado - let's go!
A is for Automated Sourcing:
Automated sourcing leverages technology, such as AI and machine learning, to streamline and expedite various stages of the sourcing process. This includes tasks like supplier identification, data analysis, and even initial communication, reducing manual effort and accelerating decision-making. It enhances efficiency, accuracy, and overall sourcing cycle times.
Example: A company uses an AI platform to scan global databases, identify potential component suppliers meeting specific criteria, and automatically send out initial requests for information (RFIs) to qualified vendors.
B is for Bid Management:
Bid management encompasses the strategic process of preparing, submitting, and evaluating competitive bids from potential suppliers. It involves defining clear requirements, structuring the bidding process, analyzing submissions against predefined criteria, and ultimately selecting the most suitable vendor based on price, quality, and other factors.
Example: A construction firm manages bids for a new project, receiving proposals from multiple subcontractors, evaluating each against a scoring matrix that includes cost, experience, and proposed timeline, before awarding the contract.
C is for Category Management:
Category management, within sourcing, involves grouping similar goods or services into distinct categories and developing specific sourcing strategies for each. This allows for specialized expertise, deeper market understanding, and optimized negotiations within each category, leading to improved cost savings and supplier relationships.
Example: An automotive manufacturer categorizes its sourcing needs into "engine components," "interior electronics," and "exterior body parts," assigning dedicated sourcing teams to develop long-term strategies for each.
Read more: Product categories we source
D is for Direct Sourcing:
Direct sourcing focuses on acquiring raw materials, components, or services that are directly incorporated into a company's final product or service. This type of sourcing is critical for production and often involves long-term relationships with key suppliers to ensure consistent quality and supply chain stability.
Example: A furniture company directly sources specific types of timber and upholstery fabric that are used to build its sofas and chairs.
Read more: Our sourcing process
E is for E-Sourcing:
E-sourcing utilizes internet-based technologies and platforms to conduct sourcing activities, from supplier discovery and RFx processes to online negotiations and contract management. It offers greater efficiency, transparency, and reach compared to traditional manual methods, enabling faster supplier selection and cost reduction.
Example: A retail chain uses an e-sourcing platform to issue an online Request for Proposal (RFP) for its logistics services, allowing multiple freight companies to submit their bids digitally.
Read more: From idea to factory in 3 hours
F is for Forecasting:
Forecasting in sourcing involves predicting future demand for goods and services to proactively plan sourcing activities. Accurate forecasting helps determine optimal order quantities, identify potential supply shortages or surpluses, and negotiate better terms with suppliers by providing them with clearer visibility into future needs.
Example: A electronics company forecasts a 20% increase in demand for its new smartphone model next quarter, leading its sourcing team to increase orders for critical components from its semiconductor suppliers.
G is for Global Sourcing:
Global sourcing entails identifying and acquiring goods and services from international suppliers, leveraging worldwide supply chains to achieve cost efficiencies, access specialized expertise, or secure unique resources. It broadens the supplier pool, but also introduces complexities like customs, logistics, and geopolitical risks.
Example: A fashion brand sources its textiles from various countries like India, China, and Vietnam to take advantage of competitive pricing and diverse fabric options available globally.
H is for Hub-and-Spoke Model:
The hub-and-spoke sourcing model typically centralizes core sourcing functions (the "hub") like strategy and high-level negotiations, while decentralized "spokes" handle localized or tactical sourcing activities. This structure aims to balance centralized control and consistency with responsiveness to regional market needs.
Example: A multinational corporation has a central sourcing hub in its headquarters for global commodity agreements, but regional offices (spokes) manage local supplier relationships for specific services like office supplies or maintenance.
I is for Indirect Sourcing:
Indirect sourcing focuses on acquiring goods and services that support a company's operations but are not directly incorporated into its final products. This includes items like office supplies, IT equipment, marketing services, and facility maintenance, which are essential for business functionality.
Example: A software development firm sources office furniture, cloud computing services, and catering for employee events through its indirect sourcing department.
J is for Joint Venture:
In a sourcing context, a joint venture typically involves two or more companies collaborating to establish a new entity or project focused on securing a particular supply or raw material. This strategic partnership can share risks, leverage combined expertise, and gain access to resources that might be difficult to acquire individually.
Example: Two competing car manufacturers form a joint venture to invest in a new lithium mine, ensuring a stable and cost-effective supply of batteries for their electric vehicles.
K is for Key Performance Indicators (KPIs):
Sourcing KPIs are measurable metrics used to evaluate the efficiency, effectiveness, and success of sourcing activities. They provide quantifiable insights into areas such as cost savings, supplier performance, lead times, and compliance, enabling continuous improvement and strategic decision-making.
Example: A sourcing team tracks KPIs like "cost reduction percentage," "on-time delivery rate," and "supplier defect rate" to assess the performance of its new supplier agreements.
L is for Long-Tail Sourcing:
Long-tail sourcing addresses the acquisition of a large volume of low-value, infrequent, or highly specialized items, often from a fragmented supplier base. Managing these numerous small transactions efficiently is a challenge, often requiring automation or specialized strategies to avoid disproportionate administrative costs.
Example: A university's sourcing department manages thousands of unique, small-value purchases annually, ranging from specific laboratory chemicals to obscure library books, each from a different vendor.
M is for Market Intelligence:
Market intelligence in sourcing involves collecting, analyzing, and interpreting data about supplier markets, pricing trends, technological advancements, and competitive landscapes. This information empowers sourcing professionals to make informed decisions, identify new opportunities, and negotiate more effectively.
Example: A sourcing manager researches global semiconductor market trends, including new fabrication technologies and geopolitical risks, before negotiating a long-term supply contract with a chip manufacturer.
N is for Negotiation:
Negotiation in sourcing is the strategic process of discussion and compromise between a buyer and a supplier to reach a mutually agreeable contract. It aims to secure favorable terms regarding price, quality, delivery, service levels, and other commercial aspects, maximizing value for the buying organization.
Example: A retailer's sourcing team negotiates with a clothing manufacturer on bulk order discounts, payment terms, and lead times for their new seasonal collection.
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O is for Offshoring:
Offshoring in sourcing refers to relocating a company's sourcing activities or production processes to a foreign country, typically to take advantage of lower labor costs, tax incentives, or access to specific raw materials or expertise. It's a strategic decision with potential cost benefits but also logistical and cultural challenges.
Example: An American electronics company decides to offshore the manufacturing of its circuit boards to a factory in Southeast Asia to reduce production costs.
P is for Preferred Supplier List (PSL):
A Preferred Supplier List (PSL) is a curated register of pre-qualified and vetted suppliers with whom an organization has established relationships and often negotiated favorable terms. Using a PSL streamlines sourcing, reduces risk, and leverages existing relationships for consistent quality and service.
Example: A multinational consulting firm maintains a PSL for its IT hardware needs, ensuring that all internal teams only source laptops and servers from approved vendors with pre-negotiated volume discounts.
Read more: Sourcy's methodology on supplier vetting
Q is for Qualification (Supplier):
Supplier qualification is the rigorous process of assessing a potential supplier's capabilities, financial stability, quality management systems, ethical practices, and ability to meet specific requirements before engaging them. This due diligence minimizes risk and ensures suppliers can consistently deliver as expected.
Example: Before adding a new component manufacturer to its supply chain, an aerospace company conducts a thorough supplier qualification, including facility audits, financial reviews, and quality certifications.
R is for Request for Information (RFI):
An RFI is a preliminary document sent to potential suppliers to gather general information about their capabilities, products, services, and experience. It's used early in the sourcing process to broadly understand the market and narrow down potential candidates before more formal requests.
Example: A company planning to upgrade its enterprise resource planning (ERP) system sends out an RFI to several software vendors to learn about their offerings and implementation approaches.
S is for Supplier Relationship Management (SRM):
SRM is a systematic approach to managing an organization's interactions with its suppliers. It focuses on developing and maintaining strong, collaborative relationships with key suppliers to maximize value, foster innovation, reduce risk, and drive continuous improvement throughout the supply chain.
Example: A large supermarket chain implements an SRM program, holding regular review meetings with its top fresh produce suppliers to discuss performance, forecasts, and collaborative initiatives.
T is for Total Cost of Ownership (TCO):
TCO in sourcing considers all direct and indirect costs associated with a sourced good or service over its entire lifecycle, not just the initial purchase price. This includes acquisition, maintenance, operational, and even disposal costs, providing a more accurate assessment of true economic impact.
Example: When sourcing new production machinery, a manufacturer calculates the TCO, factoring in not only the purchase price but also energy consumption, maintenance costs, spare parts, and eventual decommissioning expenses.
U is for Unified Sourcing Platform:
A unified sourcing platform integrates various sourcing functionalities, such as supplier management, RFx processes, contract management, and analytics, into a single, comprehensive system. This streamlines workflows, improves data visibility, and enhances collaboration across the entire sourcing lifecycle.
Example: A global conglomerate implements a unified sourcing platform that allows all its business units to access a centralized supplier database, manage bids, and track contracts from one system.
V is for Vendor Management:
Vendor management encompasses the comprehensive process of managing interactions with third-party suppliers, focusing on optimizing value, mitigating risks, and ensuring compliance. It includes activities like performance monitoring, contract adherence, risk assessment, and fostering productive relationships.
Example: An IT department implements a robust vendor management process for its software providers, regularly reviewing service level agreements (SLAs), addressing support issues, and planning for future needs.
W is for Weighted Scoring Model:
A weighted scoring model in sourcing assigns different levels of importance (weights) to various evaluation criteria when assessing supplier bids or capabilities. This quantitative method helps objectively compare vendors by reflecting the strategic priorities of the sourcing decision, ensuring alignment with business goals.
Example: When selecting a logistics partner, a company uses a weighted scoring model, giving 40% weight to delivery speed, 30% to cost, 20% to reliability, and 10% to environmental sustainability.
X is for XML (eXtensible Markup Language):
XML in sourcing often facilitates the standardized exchange of data between different sourcing systems and platforms. It provides a flexible way to define and transmit structured information, enabling interoperability for documents like purchase orders, invoices, and supplier catalogs.
Example: A large enterprise uses XML to exchange purchase order data seamlessly between its internal procurement system and its key suppliers' order management systems, automating the ordering process.
Y is for Yield Management:
While primarily a revenue management concept, "yield management" in a sourcing context can refer to optimizing the utilization and value extracted from sourced resources or supplier capacity. It's about maximizing the efficiency or output from a given sourcing input, particularly with finite or flexible resources.
Example: A concert promoter might apply a form of yield management to its sourcing of temporary event staff, optimizing shift scheduling and worker allocation to maximize productivity for fluctuating crowd sizes.
Z is for Zero-Based Sourcing:
Zero-based sourcing is a strategic approach that requires every sourcing decision and expenditure to be justified from scratch, regardless of past spending patterns. It encourages a critical evaluation of needs and alternatives, often leading to significant cost reductions and process efficiencies.
Example: Annually, a non-profit organization employs zero-based sourcing for all its administrative supplies, requiring each department to fully justify every pen, paper, and printer toner cartridge needed, rather than simply renewing previous orders.
There we have it!
A to Z key sourcing terminologies by alphabetical order. Very well done for making to the end of this guide. Feel free to save this article and share with your colleagues if you fine it helpful.
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