Essential Steps To Strategic Sourcing

Supply management is a broad term describing the several activities of identifying, acquiring and managing the products or resources needed to run a business or an organization. This includes tangible and intangible goods both that are resources, information, services, and any other resources needed.

Over the time the professionals involved in purchasing have moved up to the level of supply chain management. All credit to globalization and urbanization, there has been an immense increase in consumer awareness and demand that have led the industry professionals into constant balancing act. To strike the balance and make plans for future serious technical, business and leadership skills are needed.

Apart from the regular working of the company, supply chain managers work diligently towards saving the cost of procurement of resources without letting the quality of service to deteriorate. The metamorphosis in the supply chain industry has led to the evolvement of strategic sourcing or involvement of business strategy by the supply chain managers to maximize the performance and also ensure the supply chain goals. As per the Institute for supply chain, strategic sourcing is organized and collective methodology targeted spend across the locations with the team of suppliers that are best suited to create knowledge and value in the supply to end user.

Therefore strategic sourcing program involves the following essential steps:

1] Choose a category with targeted spend- This is the basic step of the formal methodology. The supply chain managers need to identify and analyze the amount available for spending that can help in improvisation. This amount available could be huge or it could be a small amount that could use some refining. This requires detailed research regarding the suppliers who can provide material or service, logistics needed, the cost involved, and any term that could influence the present or future spend.

2] Identify supplier profile- After process resumes the tentative list of suppliers should be considered. The pros and cons of the suppliers should be considered. The term of the contract with the present supplier, supplier’s flexibility, the image of the brand and other such factors should be taken into the consideration before any change in the supplier is considered.

3] Communicate with the competitors- The supply chain managers will create a thorough list of competitor suppliers, their terms, and methodology of work with the present supplier’s services and costs. After a list of potential suppliers has been generated communicating with them regarding the market trends should be done.

4] Start the bidding process- In the step of methodology, the supply chain managers inform the present suppliers regarding the change of supplier that they intend to bring. They ask for new rates and terms for future supply work or proposals. This step requires a crystal clear communication from both the ends so that the standards of work are pre-determined to avoid any confusion for the later steps.

5] Negotiating to select the suppliers-After the process of bidding, the supply chain managers evaluate the offers and select the vendor who proves to be the best viable supplier for the business. A list is made of the tentative suppliers with which the supply managers further negotiate and conclude to the suppliers who offer the best benefit and value for the business.

6] Implement the contract agreements- After the supplier has been decided upon and the terms of the contract have been decided upon. Then the supply chain managers format the onboarding process, performance reviews and relationship management process will look like. If the relation with the supplier is healthy, it could benefit by way of reduces rates or on time or before time supply of goods and services and these factors ultimately contribute to the smooth functioning and betterment of the business.

7] Work to strive for improvement- The work of supply chain managers does not end with the signing of the contract, it is a continuous process. They need to work on improving their services continuously; new and innovative ways to improve the supply chain should be considered and implemented. Conducting value analysis, target costing and benchmarking the competitor are methods to achieve improvement in the work.  Regular checking of the work and strategic sourcing initiative should be done.

Benefits of strategic sourcing-

The whole process of strategic supply process involves a period of 4 to 5 months; it consumes time and resources of the business, but reduces the cost by 15% and improves the quality of service. The strategic methodology also facilitates in improving the relation with the supplier, internal levels of communication, better quality of products and services. Strategic sourcing cannot be accomplished without the help of sophisticated technology, so sourcing agent in China would not only ease the work but also improve the quality aspect of it.

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