What does sourcing risk refer to in procurement?

Sourcing risk in procurement encompasses various uncertainties and potential losses that can occur when selecting suppliers. This includes the possibility that the chosen supplier may not deliver as expected, which could lead to issues such as delays, quality problems, or even financial loss if the supplier fails to meet contract terms. It emphasizes the importance of thoroughly assessing and choosing reliable suppliers to mitigate these risks, as inappropriate supplier selection can have significant repercussions on the overall procurement strategy and operational efficiency.

While delays in shipping, the risk of supplier bankruptcy, and fluctuating material prices are all pertinent concerns within the procurement process, they are more specific operational or financial risks rather than the overarching concept of sourcing risk itself, which focuses fundamentally on the procurement decision-making aspect and its inherent uncertainties.