Supply Chain Sourcing and Buying 101

To understand supply chain sourcing and buying, it would be useful to explore the main constraints procurement managers must contend with.

Total Landed Cost

While price is a primary factor in choosing the vendor to work with, the decision springs up other costs. For example, working with an overseas vendor means added shipping costs on top of customs and duties. The procurement team must consider the trade relations between the two countries involved. When relationships between countries are volatile, punitive and unexpected customs charges might arise and impact a company’s supply chain negatively, and sometimes critically. Working with international vendors also means that companies have to cushion themselves against the possible adverse effects of foreign exchange movements.

Product Quality

When settling on a vendor for critical supplies, you have to ensure that their product quality meets the set standards. Poor quality materials going into your final product might lead to the loss of key customers. A bad reputation also makes it harder to win new customers. B2B customers are particularly adept at getting information from your existing customers. Information passes around, especially during industry events or even through formal publications.

Poor quality might also mean that you cannot charge a premium price for your final product. In other cases, it might expose your company to the risk of lawsuits for failing to meet standards in highly regulated industries.

Logistics Implications

Logistics is a major constraint in sourcing decisions. It may not make sense to source just one item from South America, for instance, when a lot of other items are being shipped from China and your manufacturing base is in New York. Using a single port of shipping means you can consolidate your shipments and negotiate preferential rates with the shipping company. Fragmented sourcing might sacrifice your economies of scale.

You might want to consider other factors such as the effects of seasonal weather phenomena that lead to port closures and other forms of disruptions. If your supply chain and sourcing face such risks, there is a need to have contingency plans in place. It may be that your shipping partner is able to make alternative shipping arrangements on your behalf.

Global Sourcing Agents

Working with international vendors is complicated. Global sourcing agents come in to smoothen out complications by carrying out due diligence on behalf of external purchasing companies. For instance, if you are an American company sourcing in India, a sourcing agent will provide a list of suppliers who meet your criteria and who are properly regulated by the local authorities. The availability of these sourcing agents affects the ease of the sourcing process.

The Agility of the Vendor

In many markets, companies are expected to cut the time it takes to ship new products to the market quickly. Big tech companies are holding major release events every year if not the half a year. There is pressure on suppliers to keep up pace with this demand and be able to produce new parts or at least make tweaks as required. As a procurement lead, you want to work with suppliers who can demonstrate the required capacity to respond to your production needs quickly and efficiently (cost-wise).

Culture Fit

Manufacturing companies will want to work with vendors with whom they can form long-term relationships. This way, they can share their future production needs so that the supplier can plan their capacity in advance. They’ll also share data on product quality and find mutually beneficial ways to improve it over time. In order for this to be possible, both companies must feel that the other is a good fit in terms of their working methods, evaluation criteria, and so on.

The Importance of Technology in Sourcing and Buying

Technology plays a significant role in the supply chain and sourcing process at any organization. The amount of information involved in sourcing is vast‌. Software with a sourcing module would help to maintain a roster of pre-screened vendors and an up-to-date catalog. The company can send a request for quotes to vendors in minutes with a simple query.

Technology also assists in the objective evaluation of vendor prices and other terms. Once a vendor is onboarded, it also helps to track their performance on multiple metrics which would otherwise be impossible to do. You can track their prices over months, delivery times, complaints on quality, and so forth.

The use of technology in the sourcing and buying process also makes an organization’s process much more transparent. Organizations can always track how vendors were onboarded, how their quotes compared to others and the nature of their current running contract. In fact, companies today maintain contract repositories from where they can easily retrieve contract metadata or even set up notifications regarding important dates such as contracts due for renegotiation and renewal.

If your company is seeking the best industry-grade tools to support its sourcing and buying functions, reach out to ProcurePort for a free consultation. At ProcurePort, we provide world-class e-procurement solution to help drive speed, efficiency, agility and much more to our client’s operations.