Understanding The Concept Of Strategic Sourcing

Every company has its supply model for the procurement of raw materials and finished products. Well, even if a company was following a certain model since the beginning, it does not mean it was correct or perfect. The thing is, there is always room to plan better. This is especially true in the present market where there is a need to use the finances more effectively. Now, this is where strategic sourcing can help.

Strategic Sourcing

Strategic sourcing is an all-inclusive approach to developed channels of supply. All the activities connected with procurement are taken into consideration, and the aim is to secure the best possible total cost. Remember the goal is to find the best possible cost, not the cheapest price.

One major thing that strategic sourcing involves is consolidating suppliers. This minimizes the risks associated with the supply chain. This approach is a long-term process in which the sourcing activities of the business are continuously re-evaluation. Also, the market is analyzed regularly, and efforts are made to align business goals with the requirements of suppliers.

7-steps of strategic sourcing

  1. Product category is outlined in detail and spending patterns as well as involved departments are considered.
  2. The market is analyzed and new suppliers, local as well as global are identified.
  3. A sourcing strategy is developed depending on the business goals, and decisions are made about where to buy to reduce cost and risk.
  4. Selecting an appropriate sourcing process.
  5. Negotiate with all the available suppliers after receiving their quotes.
  6. Start working with new suppliers and maintain close connections with them to ensure improvements.
  7. Check the effectiveness of the sourcing plan.

Consolidated Sourcing

When you are sourcing products from China in bulk, there are good chances that you will have to deal with and negotiate with multiple vendors. This increases the risks associated with product procurement. Also, there are many other issues involved when it comes to doing business with multiple manufacturers. So, this is where consolidated sourcing solutions help.

Consolidated sourcing means a reduction in the number of suppliers. This strategy is very effective when a company wants to minimize the complexity of the procurement process. In the consolidation process, the company will identify its top most vendors that add value to the business. 

When you have to deal with just a few vendors, you can focus better on the product strategy. Also, consolidated sourcing solutions aid the company in maintaining its product quality. After all, it is easy to understand that when goods are procured from multiple vendors, quality standards are always compromised. This is because no two manufacturers will have the same factory setup and team of workers. This quality issue can eventually lead to product rejections.

Furthermore, when it comes to dealing with Chinese vendors, language and cultural differences always create an issue. All this can be reduced by simply consolidating suppliers. Companies who have opted for this sourcing model experience hassle-free product procurement in the long run.

Additional benefits of Supplier Consolidation are:

  • You get products are better prices. Your big order is distributed amongst only a few vendors and thus they offer better prices.
  • Better adherence to quality specifications. This happens since the vendor is making huge quantities of your product, and does not want to deliver any faulty lot.
  • Shipping cost is drastically reduced as not many vendors are involved and not all of them are arranging product shipping separately.
  • Better company-supplier relations. This is expected as your company will be giving big orders.

All in all, it can be said that consolidated sourcing solutions are the most perfect example of strategic sourcing. It will work for most companies, and reduce the overall cost of product procurement.