Unit 1: OM 406
Here's an overview of the importance of sourcing, sourcing objectives, purchasing policy, and
procedures:
Importance of Sourcing:
1. Cost Efficiency: Sourcing helps in finding the best suppliers at the most competitive prices,
thus reducing costs for the organization.
2. Quality Assurance: Effective sourcing ensures that the products or services procured meet
quality standards, contributing to customer satisfaction.
3. Risk Management: Sourcing from reliable suppliers reduces the risk of disruptions in the
supply chain, ensuring continuity of operations.
4. Innovation: Engaging with diverse suppliers can bring in new ideas and innovations, driving
business growth.
5. Compliance: Sourcing ensures compliance with legal and regulatory requirements related to
procurement practices.
Sourcing Objectives:
1. Cost Reduction: Achieving cost savings through negotiation, bulk purchasing, or strategic
sourcing.
2. Quality Improvement: Ensuring that sourced products or services meet quality standards
and customer expectations.
3. Supplier Relationship Management: Building and maintaining positive relationships with
suppliers to foster collaboration and innovation.
4. Risk Mitigation: Identifying and mitigating risks associated with the supply chain, such as
disruptions or quality issues.
5. Sustainability: Promoting environmentally and socially responsible sourcing practices.
6. Flexibility: Ensuring flexibility in the supply chain to adapt to changing market conditions or
customer demands.
Purchasing Policy:
A purchasing policy outlines the principles, guidelines, and procedures that govern the
procurement process within an organization. It typically includes:
1. Objectives: Clearly defined goals and objectives of the purchasing function.
2. Authority: Designation of individuals or departments responsible for procurement decisions
and their authority levels.
3. Compliance: Adherence to legal, ethical, and regulatory requirements in procurement
activities.
4. Vendor Selection Criteria: Criteria for selecting and evaluating suppliers based on factors
such as price, quality, reliability, and sustainability.
5. Contract Management: Procedures for drafting, negotiating, and managing contracts with
suppliers.
6. Conflict of Interest: Policies to prevent and manage conflicts of interest in procurement
decisions.
7. Risk Management: Strategies for identifying, assessing, and mitigating risks associated with
the procurement process.
8. Ethical Standards: Guidelines for ethical behavior and transparency in procurement
activities.
Purchasing Procedural Areas:
1. Requisition: Initiating the procurement process by identifying the need for goods or services.
2. Supplier Identification: Identifying potential suppliers through market research, vendor
databases, or referrals.
3. Request for Quotation (RFQ) or Proposal (RFP): Soliciting price quotes or proposals from
selected suppliers.
4. Supplier Evaluation: Assessing suppliers based on factors such as price, quality, delivery
time, and reliability.
5. Negotiation: Negotiating terms and conditions, pricing, and contracts with selected suppliers.
6. Purchase Order (PO) Processing: Generating and issuing purchase orders to selected
suppliers.
7. Receipt and Inspection: Receiving and inspecting goods or services to ensure they meet
specifications.
8. Invoice Processing: Verifying invoices against purchase orders and contracts and processing
payments.
9. Supplier Performance Evaluation: Evaluating supplier performance against predefined
criteria and benchmarks.
10. Contract Management: Managing contracts throughout their lifecycle, including renewals,
amendments, and terminations.
By implementing effective sourcing strategies, adhering to purchasing policies, and following
established procedures, organizations can optimize their procurement processes, reduce costs,
mitigate risks, and enhance overall efficiency and effectiveness.
