OPM 692 (OPM 6920): Sourcing

Contents
Procurement strategy sets the direction; sourcing design translates that direction into concrete decisions. This module examines how individual sourcing decisions can be designed, evaluated, and implemented with analytical rigor once the broader strategic posture is clear. The course develops the economic and quantitative foundations of sourcing by moving from demand definition and supply market analysis to decision models, mechanism choice, contracting, execution, and performance control.
The module covers demand definition and cost logic, including need identification, specification management, total cost of ownership, value engineering, and cost modeling. It then examines supply market analysis and competitive structure, including macro- and industry-level assessment, supplier market structure, concentration and competition analysis, global sourcing, and RFx design. A central part of the module is decision support for sourcing allocation through constrained optimization with linear programming, multi-criteria evaluation with scoring methods and the Analytic Hierarchy Process, Pareto trade-offs, and decision-making under uncertainty. The course also addresses auctions and mechanism design, including auction theory, reverse auctions, mechanism-choice diagnostics, and information asymmetries. It further covers contracting and incentive design through contract types, price models, risk sharing, service-level agreements, incomplete contracts, and governance. Finally, the module turns to sourcing execution and performance control, including purchase-to-pay interfaces, expediting, supplier performance measurement, and the management of non-performance and conflict through formal and relational governance mechanisms. Cases and analytical exercises are used throughout to develop structured managerial judgment in sourcing contexts.

Learning outcomes
Sourcing decisions require formal analysis of costs, markets, mechanisms, contracts, and execution risks under uncertainty. This module equips participants with the analytical frameworks and decision tools required to design, evaluate, and implement sourcing decisions in complex organizational settings. On successful completion, participants will be able to:

• translate sourcing needs into analyzable decision inputs by developing total-cost-of-ownership and cost models and by assessing how specification choices shape downstream sourcing options;
• analyze supply markets in terms of competition, concentration, capacity constraints, switching costs, and information asymmetries, and derive implications for sourcing design;
• apply constrained optimization and multi-criteria decision methods, including linear programming, scoring models, the Analytic Hierarchy Process, and Pareto analysis, to evaluate supplier trade-offs and sourcing allocations;
• assess alternative sourcing mechanisms, including competitive bidding, negotiation, and reverse auctions, and select mechanisms that fit the competitive, informational, and transactional characteristics of the sourcing situation;
• structure contracts that allocate risk and align incentives by selecting appropriate price and governance models, designing service-level agreements, and recognizing the limits of incomplete contracts;
• translate sourcing decisions into execution and control systems by designing supplier performance metrics, identifying implementation risks, and selecting contractual, operational, and relational responses to non-performance and conflict.

Necessary prerequisites
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Recommended prerequisites
The module builds on topics covered in OPM 591. Participants who have not attended this module might require additional preparation.

Examiner Performing lecturer

Prof. Dr. Christoph Bode Prof. Dr. Christoph Bode