Sourcing Fundamentals
Master the end-to-end sourcing process from intake through award. Learn how to define requirements, discover suppliers, run competitive events, and evaluate proposals.
Course Overview
Duration
45-60 minutes
Level
Beginner to Intermediate
Lessons
7 lessons
What you'll learn:
- How to capture and define requirements effectively
- Market research and supplier discovery strategies
- Running competitive sourcing events
- Evaluation and scoring methodologies
- Making award decisions
- Negotiation fundamentals
- Managing supplier Q&A effectively
Intake and Requirements Definition
The sourcing process starts with intake: capturing a need from a business user. Then comes requirements definition: clearly articulating what you need, why you need it, and what success looks like.
Figure 1: End-to-end sourcing process flow
The Intake Process
Intake is how business needs enter the procurement process. A good intake process captures essential information upfront and routes requests appropriately.
Example intake information: Business unit, budget, timeline, category, business justification, preferred suppliers (if any), special requirements (security, compliance, etc.).
Intake should answer:
- What do you need?
- Why do you need it?
- When do you need it?
- What's your budget?
- Are there any constraints or preferences?
Requirements Definition
Well-defined requirements are the foundation of successful sourcing. They guide supplier selection, enable fair evaluation, and prevent scope creep.
Figure 2: Types of requirements
Types of Requirements
What the solution must do. Features, capabilities, and behaviors.
Example: "System must support 10,000 concurrent users"
How the solution must perform. Security, performance, availability, scalability, usability.
Example: "System must be SOC 2 Type II certified"
Why you need it. Business objectives, success criteria, expected outcomes.
Example: "Reduce customer service response time by 50%"
Common mistake: Starting with solution preferences instead of requirements. "We need Salesforce" is a solution. "We need a CRM that integrates with our ERP and supports 500 users" is a requirement. Starting with requirements leads to better outcomes.
Requirements Best Practices
- Be specific: Avoid vague terms like "user-friendly" or "fast." Define measurable criteria.
- Prioritize: Distinguish must-haves from nice-to-haves. Use MoSCoW (Must have, Should have, Could have, Won't have).
- Collaborate: Involve stakeholders early. Requirements should reflect business needs, not just procurement preferences.
- Validate: Review requirements for completeness, clarity, and feasibility before creating an RFX.
- Document: Capture requirements in a structured format. Use templates and checklists.
Pro tip: Use a requirements readiness checklist before proceeding to RFX creation. This prevents rework and ensures suppliers have what they need to respond effectively.
Market Research and Supplier Discovery
Before running a competitive event, understand the market. Research suppliers, capabilities, pricing models, and trends. This informs your sourcing strategy and helps you find the right suppliers.
Why Market Research Matters
Market research helps you:
- Understand available solutions and suppliers
- Set realistic expectations for pricing and capabilities
- Identify qualified suppliers to invite
- Develop appropriate evaluation criteria
- Avoid wasting time on unsuitable suppliers
Market Research Methods
Online Research
Use search engines, industry publications, analyst reports (Gartner, Forrester), supplier websites, and review platforms.
Best for: Initial market understanding, identifying major players, understanding capabilities and pricing models.
Request for Information (RFI)
Send an RFI to multiple suppliers to gather information about capabilities, solutions, and market approaches.
Best for: Exploring new markets, understanding supplier capabilities, narrowing down supplier lists before RFP.
Industry Networks and Peers
Talk to peers, join industry groups, attend conferences, and leverage professional networks.
Best for: Getting real-world experiences, understanding common challenges, supplier recommendations.
Supplier Discovery
Supplier discovery is about finding qualified suppliers who can meet your requirements. Don't limit yourself to suppliers you already know.
Example: For IT software, you might discover suppliers through: Gartner Magic Quadrants, industry analyst reports, software review sites (G2, Capterra), trade shows, peer recommendations, and supplier databases.
When evaluating potential suppliers, consider:
- Relevant experience and capabilities
- Company size and financial stability
- Geographic presence and support
- References and case studies
- Compliance and certifications
- Cultural fit and communication style
Pro tip: Aim for 3-5 qualified suppliers in a competitive event. Too few reduces competition. Too many creates evaluation burden and may discourage suppliers from participating.
Competitive Events and Supplier Communications
Competitive sourcing events (RFI, RFP, RFQ, RFS) are structured processes for engaging suppliers. Effective communication ensures suppliers understand requirements and can respond effectively.
Planning the Event
Before launching a competitive event, plan:
- Timeline: Response deadline, Q&A period, evaluation window, award target
- Supplier list: Who to invite, how many, qualification criteria
- Evaluation approach: Criteria, weights, evaluators, scoring method
- Communication plan: How to share information, Q&A process, updates
Supplier Communications
Clear, consistent communication is essential. Suppliers need to understand requirements, timelines, evaluation criteria, and how to participate.
Example communication timeline: Week 1: Send RFX and brief suppliers. Week 2-3: Q&A period with responses shared. Week 4: Reminder of deadline. Week 5: Deadline. Week 6-7: Evaluation. Week 8: Award notification.
Communication best practices:
- Be clear and concise: Use plain language. Avoid jargon unless necessary.
- Set expectations: Clearly state deadlines, evaluation criteria, and next steps.
- Be responsive: Answer supplier questions promptly and thoroughly.
- Be transparent: Share Q&A responses with all suppliers (unless confidential).
- Provide updates: Communicate timeline changes or clarifications promptly.
- Use a single channel: Centralize communications to avoid confusion.
Common mistake: Sharing different information with different suppliers. This creates unfair competition and can lead to protests or legal issues. Treat all suppliers equally.
Event Management
Manage the event to ensure fairness and efficiency:
- Track supplier participation and responses
- Manage Q&A and share responses transparently
- Enforce deadlines consistently
- Maintain confidentiality of supplier information
- Document all communications and decisions
Pro tip: Modern sourcing platforms enable centralized collaboration, ensuring all communications are tracked, transparent, and auditable. This reduces administrative burden and ensures fairness.
Evaluation and Scoring Basics
Evaluation is the process of assessing supplier proposals against your requirements. Scoring provides a structured, objective way to compare proposals and make decisions.
Evaluation Criteria
Evaluation criteria define what you're evaluating and how important each factor is. Common criteria include:
Figure 3: Evaluation and scoring framework
- Technical/Functional: Does the solution meet requirements? Capabilities, features, architecture.
- Price/Cost: Total cost of ownership, pricing model, payment terms.
- Supplier: Company stability, experience, references, team qualifications.
- Implementation: Implementation approach, timeline, resources, change management.
- Support and Service: Support model, SLAs, training, ongoing service.
- Risk: Security, compliance, financial stability, contract terms.
Scoring Methods
Weighted Scoring
Assign weights to criteria based on importance. Score each criterion, multiply by weight, sum for total score.
Pass/Fail with Scoring
Some criteria are pass/fail (must-haves). Others are scored. Suppliers must pass all must-haves to be considered.
Comparative Scoring
Compare suppliers directly against each other rather than absolute scores. Rank suppliers on each criterion.
Scoring Scales
Use consistent scoring scales. Common scales:
Example 5-point scale:
- 5 = Exceeds requirements significantly
- 4 = Exceeds requirements
- 3 = Meets requirements
- 2 = Partially meets requirements
- 1 = Does not meet requirements
Evaluation Best Practices
- Define criteria upfront: Before suppliers respond, not after.
- Use multiple evaluators: Different perspectives reduce bias.
- Calibrate evaluators: Ensure consistent understanding of criteria and scales.
- Document rationale: Record why scores were given. Essential for auditability.
- Normalize responses: Compare like-for-like. Structure supplier responses for fair comparison.
- Review as a team: Discuss scores, resolve discrepancies, reach consensus.
Common mistake: Scoring based on gut feel without clear criteria. This leads to inconsistent evaluation, bias, and difficulty defending decisions. Always use structured criteria and documented rationale.
Pro tip: Collaborative evaluation tools enable multiple evaluators to score independently, then review together. This combines individual judgment with team discussion for better decisions.
Award Decision Making
The award decision is the culmination of the sourcing process. It should be based on evaluation results, aligned with business objectives, and properly documented for auditability.
Factors in Award Decisions
Award decisions typically consider:
Figure 4: Award decision framework
- Evaluation scores: Quantitative assessment from scoring
- Price and value: Total cost of ownership, not just initial price
- Risk assessment: Supplier stability, implementation risk, compliance risk
- Strategic fit: Alignment with business goals, long-term partnership potential
- Stakeholder input: Feedback from business users, IT, legal, finance
Decision-Making Approaches
Score-Based Award
Award to the supplier with the highest total score. Simple and objective, but may not account for qualitative factors or strategic considerations.
Best Value Award
Award to the supplier offering the best overall value, considering both score and price. Balances quality and cost.
Lowest Price Technically Acceptable (LPTA)
Award to the lowest-priced supplier who meets all technical requirements. Best when requirements are clear and price is the primary differentiator.
Strategic Award
Award based on strategic considerations beyond scores: partnership potential, innovation, market position, long-term value.
Award Documentation
Document the award decision thoroughly. This is essential for auditability and stakeholder communication.
Award memo should include:
- Executive summary of the decision
- Evaluation summary and scores
- Rationale for the award
- Price comparison and value analysis
- Risk assessment
- Approval chain and sign-offs
- Next steps (contract negotiation, implementation)
Common mistake: Making award decisions without proper documentation. When auditors or stakeholders ask "why this supplier?" you need clear, documented rationale. Spreadsheets and email threads don't provide adequate auditability.
Communicating the Award
Notify suppliers of the decision:
- Winning supplier: Congratulate, outline next steps, begin contract negotiation
- Non-winning suppliers: Thank for participation, provide feedback if appropriate, maintain relationships
- Internal stakeholders: Communicate decision, rationale, and implementation plan
Pro tip: Maintain good relationships with non-winning suppliers. They may be suitable for future opportunities or provide valuable market intelligence.
Negotiation Fundamentals
Negotiation happens after award, before contract execution. It's about reaching agreement on terms, pricing, and conditions that work for both parties.
What to Negotiate
Negotiations typically cover:
- Price and payment terms: Final pricing, discounts, payment schedule, currency
- Contract terms: Duration, renewal options, termination clauses, liability
- Service levels: SLAs, performance metrics, penalties, credits
- Scope and deliverables: What's included, exclusions, change management
- Implementation: Timeline, resources, milestones, acceptance criteria
- Support and maintenance: Support model, response times, updates, training
- Legal and compliance: Data protection, security, IP rights, warranties
Negotiation Preparation
Preparation is key to successful negotiation:
- Know your priorities: What's must-have vs nice-to-have
- Understand market pricing: Benchmark against market rates
- Know your alternatives: What are your options if negotiation fails?
- Understand supplier motivations: What do they need? Revenue, reference, market entry?
- Prepare your team: Who negotiates what? Legal for terms, procurement for price, business for scope
- Set objectives: Target outcomes, acceptable ranges, walk-away points
Example: You're negotiating software. Must-haves: core functionality, security compliance, 99.9% uptime SLA. Nice-to-haves: additional modules, extended support hours, custom training. Price target: 20% discount from list. Walk-away: if they can't meet security requirements or price exceeds budget by 15%.
Negotiation Strategies
Collaborative Approach
Work together to find win-win solutions. Focus on mutual value creation. Best for long-term partnerships.
Competitive Approach
Maximize your gains. Use leverage, deadlines, alternatives. Best for one-time transactions or when you have strong alternatives.
Value-Based Negotiation
Focus on total value, not just price. Trade-offs: longer term for better price, volume for discounts, references for concessions.
Common Negotiation Tactics
Be aware of common tactics (and use them appropriately):
- Anchoring: Starting with an extreme position to influence the negotiation range
- Bundling: Linking multiple items together (e.g., "discount if you buy all modules")
- Deadlines: Creating urgency to force decisions
- Authority limits: "I need to check with my manager" to buy time or create pressure
- Concessions: Trading items of different value to each party
Pro tip: Understand what's valuable to the supplier that costs you little, and what's valuable to you that costs them little. These are the best trade-offs. For example, a case study or reference may be valuable to them but cost you nothing.
Documenting Agreements
Document all agreements during negotiation. Don't rely on verbal agreements or memory.
- Track agreed terms in real-time
- Confirm understanding of key points
- Document trade-offs and concessions
- Capture any conditions or dependencies
- Maintain version control of contract drafts
Common mistake: Agreeing to terms verbally and assuming they'll be in the contract. Always confirm in writing. "What we agreed" and "what's in the contract" can differ.
Supplier Q&A Management
During competitive events, suppliers will have questions. Managing Q&A effectively ensures suppliers can respond accurately and fairly, while maintaining transparency and efficiency.
Why Q&A Matters
Effective Q&A management:
- Clarifies requirements and expectations
- Ensures all suppliers have the same information
- Reduces evaluation challenges and protests
- Improves response quality
- Builds supplier confidence and engagement
Q&A Process
Typical Q&A process:
- Supplier submits question through designated channel
- Procurement logs question and routes to appropriate responder
- Responder prepares answer (may consult with stakeholders)
- Answer is reviewed for accuracy and completeness
- Answer is published to all suppliers (unless confidential)
- Question is marked as answered
Q&A Best Practices
- Set a Q&A deadline: Allow time for questions but close Q&A before response deadline to ensure fairness
- Centralize Q&A: Use a single channel (platform, email, portal) to track all questions
- Respond promptly: Aim for 24-48 hour response time. Delays frustrate suppliers and may delay responses
- Share with all suppliers: Unless confidential, share Q&A responses with all participants for transparency
- Categorize questions: Group similar questions, identify common concerns, update RFX if needed
- Document everything: Maintain a Q&A log for auditability and reference
Handling Different Question Types
Clarification Questions
"What does 'scalable' mean in this context?" Answer directly and share with all suppliers. These are the most common.
Scope Questions
"Is training included?" Clarify scope and update RFX if needed. Share clarification with all suppliers.
Technical Questions
"What integration methods are supported?" Route to technical experts. Provide detailed answers.
Confidential Questions
"What is our current spend?" Handle confidentially. Answer privately if appropriate, or decline if too sensitive.
Example: Supplier asks "What is the expected implementation timeline?" This is a clarification question. Answer: "Implementation should begin within 30 days of contract execution and complete within 90 days. This is a requirement, not a preference." Share this answer with all suppliers.
Using Technology for Q&A
Modern sourcing platforms can streamline Q&A management:
- Centralized Q&A portal where suppliers submit questions
- Automatic routing to appropriate responders
- Template responses for common questions
- Automatic sharing of answers with all suppliers
- Q&A log for auditability
- Search functionality to find similar past questions
Pro tip: Some platforms use AI to automatically answer common questions based on RFX content. This reduces manual effort while ensuring consistent, accurate responses. Human review ensures quality.
Common mistake: Answering questions via email or phone without documenting or sharing with all suppliers. This creates unfair competition and audit risks. Always centralize and share Q&A.
Course Complete
You've mastered the sourcing fundamentals. Ready to learn about Source to Contract or dive into RFX specifics?