Learning Outcomes

After studying the chapter you should be able to:

• identify the key issues, concepts and appropriate tools to source and procure supplies;

• select and apply appropriate tools and concepts involved in sourcing, procurement including supplier development and evaluation;

• understand key issues in relation to ethical and environmental responsibilities of suppliers and buyers;

• analyse the key variables and their relative importance to decisions in global and local sourcing;

• evaluate supplier selection and procurement decisions (e.g. single and multiple sourcing).

The aim of this chapter is to introduce you to a number of important concepts involving sourcing and procurement decisions. All organizations face decisions of supplier selection, sourcing, risk evaluation, legal and ethical considerations. Organizations need to source supplies from a variety of different organizations locally, nationally and/or globally. Each type of sourcing has its own merits and they are discussed in the first part of this chapter. The iceberg theory of cost comparisons in sourcing and procurement decisions is then explained and examples are given relating to hidden costs in the decision-making processes. In explaining these hidden costs a number of influencing factors are discussed including the ways in which organizational performance and buyer performance is evaluated and the consequences of the measures on the decision-making processes. The next part of the chapter discusses supplier selection criteria and examines the role of manufacturers, wholesalers and distributors as intermediaries. Also examined are single and multiple sourcing strategies and their relative merits before assessing environmental and ethical issues related to sourcing...