Creating a Practical and Profitable Sourcing Strategy

It is extremely important for companies that have a rapidly-changing product portfolio to stay ahead of the game. This is usually done by evolving the plan for the sourcing services during the time the product design time and actively seeking out potential suppliers that can best meet the projected demand. Since much of the technology can be very new, there needs to exist a supplier involvement from every early in the product development stage so that they can also deliver accordingly.

Because of the scale of operations in large companies, senior management from virtually all the functions need to be involved in the sourcing strategy development and implementation. This ensures that the procurement function is more deeply integrated into the business strategy of the company.

Managing Quality and Supply Consistency Risks

It is vital that companies whose fortunes depend substantially on the success of their sourcing services have a very well-established system of supplier inspection and certification. The process needs to take into account multiple parameters such as the vendor’s financial strength, manufacturing capacity, and QC systems. The process also needs to continually track vendor performance so that deviations can be addressed even before they impact upon the supply chain. Among the criteria used for vendor identification are its competencies, and ability to respond to disruptions in supply chain.

An effective risk mitigation strategy is put into place that not only investigates and identifies issues but ensures backup for sustained supply chain management in the face of natural disasters or supplier insolvencies. Long term investment and cooperation programs nurture key relationships, while joint promotion of identified products reduce supply-variability risks.

The Ideal Supplier Profile

The complexities of global sourcing services has elevated the status of suppliers from mere vendors to business partners. This necessitates a sea change in the way their role is perceived within the company. It also necessitates an appreciation that supplier performance lies not only in cost-effectiveness but also in driving innovation and maintaining high standards of manufacturing and associated support.

Creating a Practical and Profitable Sourcing Strategy

Basically, you end up thinking the suppliers to be extended divisions of the company itself. Of course, this means that suppliers too have to gear themselves up completely and also undertake a radical change in their perception of the relationship with their principals.

Balancing Local and International Sourcing

The days are long gone when global sourcing was a mindless pursuit of lowest per unit manufacturing cost. Companies have since then discovered the benefits of stable supply chains as well as the need for market responsiveness to keep in sync with marketplace dynamics. Products that need very short lead times are best manufactured at home, while lower costs can be pursued more effectively for products that do not see much change over a relatively longer period of time.

It may also happen that even though certain products or accessories may actually be cheaper to manufacture in a certain country, the extra cost of logistics and inventory negate such gains.It becomes more profitable to manufacture the item in a country where the item will be sold even if this means incurring a higher cost manufacturing cost.

Where sourcing services by vendors include products that need further enhancements in a different country, the principals may well demand that the vendor manage their inventories or even setup their own assembly lines or manufacturing facilities. This not only achieves better economies but also complies with local government regulations regarding domestic manufacture of a specified percentage of production.

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