What factors should be considered when making sourcing decisions?

Answer: When designing a sourcing strategy, it is important for a firm to be clear on the factors that have the greatest influence on performance and target improvement on those areas. For example, if most of the spending for a firm is on materials with only a few high-value transactions, improving the efficiency of procurement transactions will provide little value, whereas improving design collaboration and coordination with the supplier will provide significant value. In contrast, when sourcing items with many low-value transactions, increasing the efficiency of procurement transactions will be very valuable.

When scoring and assessing suppliers, the following factors other than quoted price must be considered:
 Replenishment lead time
 On-time performance
 Supply flexibility
 Delivery frequency/minimum lot size
 Supply quality
 Inbound transportation cost
 Pricing terms
 Information coordination capability
 Design collaboration capability
 Exchange rates, taxes, and duties
 Supplier viability

Supplier performance must be rated on each of these factors because they impact the total supply chain cost.