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Strategic Sourcing

What Is Strategic Sourcing and Why Should You Care?

Few sectors rely on a consistent supply of components more than electronics production. Every supply chain has its own model for procuring components, but simply because a company has always done things a specific way does not mean it should continue to do so. This is especially true when financial resources can be better utilized. This is where strategic sourcing can help.

What Does Strategic Sourcing Actually Do?

Strategic sourcing is a comprehensive method to building supply channels that analyzes all aspects of the procurement process in order to achieve the lowest total cost possible, rather than just the lowest buy price for those goods.

Strategic sourcing enables companies to pool their purchasing power in order to achieve the lowest total cost of ownership and reduce supply chain risk. The strategy is a long-term process that requires constant re-evaluation of the company’s sourcing efforts, market analysis, and alignment of the company’s goals and requirements with those of the suppliers.

Strategic Sourcing and Supply Chain Management

Procurement and supply chain management are closely related and thus, so is strategic sourcing. While procurement is the act of getting the goods and services a business needs, supply chain management is the management of the infrastructure and services required to get those things. A supply chain consists of everyone involved in getting a product or service into the hands of a consumer.

There Are Also Several Key Problems That May Arise from Outsourcing:

1. Service continuity

There is a handover period that must be managed in order for products to continue to be supplied. At the start of every handover, you should have a clear transition plan in place.

2. A decrease in control

Obviously, outsourcing gives you less control over day-to-day purchasing activities, so make sure you hire a reputable firm and have a measurable and enforceable service level agreement in place (SLA).

3. Outsourcing Management

You must monitor outsourcing procurement on a continuous basis and ensure that you follow your contracts and SLAs.

4. Integration

Not only will you need to integrate your technology so that your accounting and warehouse systems are up to date, but your employees will also need to be aware of what is going on on a daily basis.

The Way to Get Rid of This Issue

  1. Headcount, training, office space, and computerization all save costs.
  2. Better discounts are possible due to market leverage.
  3. Economies of scale reduce transaction costs per purchase.
  4. Marketing expertise in determining the best suppliers for each product to be acquired.
  5. Staff with extensive experience in purchasing.
  6. Communication between purchasing experts and company employees has improved.
  7. Negotiation by a subject matter expert is frequently more effective and profitable.

The Benefits of Strategic Sourcing

So, what’s the point of going through all the trouble of creating a sourcing strategy? There are numerous benefits to carefully considering procurement outsourcing management. Consider the following scenario:

1. Cost-cutting

Procurement outsourcing can save you money in a variety of ways and have a significant influence on your bottom line. Cost-cutting yields immediate benefits and frees up resources to build your firm and concentrate on profitability.

2. Management of Risk

Procurement outsourcing reduces supply risk in ways that go beyond a compliance check. While many companies have a pre-vetting process in place to assess a supplier’s financial stability, there are other concerns to consider.

3. Supplier Partnerships

Taking into account supplier operations and capabilities will offer up new avenues for developing supplier relationships. A vendor can have an impact on a customer’s buying experience and expectations, but they are rarely held responsible for any faults or quality concerns that arise.

Note: Strategic sourcing can save you 70% of the money you could spend on procurement.

Strategy is the Way of the Future

We now have the tools and technology to integrate strategy into all aspects of the company, including procurement. Corporate purchasing has progressed significantly. A dynamic set of factors, ranging from supplier behavior to competitive analyses and contract negotiations, are taken into account by supply chain management and strategic sourcing.