What is the most challenging thing for many companies within the supply chain is to find suitable sources or, in other words, to procure the correct products. Sourcing or procurement affects almost every company and business in some way.
A seven-step strategic sourcing strategy process will help companies be successful when looking to procure a product or a commodity. If companies take the time to go through each of the seven steps, this will help them to ensure they are successful with their sourcing needs.
These are seven basic steps for anyone who is trying to source a product or commodity. These seven strategic sourcing steps will also teach you how to use a sourcing process to avoid errors within your sourcing strategy.
Below are the steps of the strategic sourcing process explained:
Step 1 – Indentify What You Will Source
The first step is to identify what product or commodity you need to source. Here are a few things that you should look at:
- Product Specifications – The first thing you need to really look at is your product specifications. What size do you need? What type of quality? Do you have any other specifications that you need for this product or commodity? All of these things are questions that you need to consider.
- Use of Product – Does it need to clearly define how you are going to use the product? Is this something you were going to need to frequently purchase? Do you need it as part of your own supply chain or a manufacturing need?
- Volume – You should have a clear understanding of what you are going to buy and how much quantity you need. Obviously if you only need to buy one or two items you may not be able to buy it from a wholesaler. If you need to buy large quantities it may be more prudent for you to import it.
Step 2 – Analysis Market Supply
Analyzing your market supply will help you clearly understand your market supply and make a difference in your entire sourcing strategy.
As we have seen with many of the recent supply chain bottlenecks, you need to analyze if this is a product you need from overseas or buy it locally. Will you be able to receive it in a more timely manner if you purchase it overseas or locally? All these things need to be analyzed with the market supply.
There is a simple matrix known as Kraljic’s Matrix. In 1983, Peter Kraljic argued that supply chain items should consider two critical areas of focus; risk and profitability.
The Analysis Market Supply Matrix by Peter Kraljic
Risks are looked into if the supply chain has issues (such as a container shortage or delays) that disrupt operations. Today’s supply chain has seen many of these risks play out with container shortages and other uncertainties.
Profitability is the issue of supply chain problems or the company’s bottom line. With this, it could be the cost of shipping goods and products to their destination. We have seen this again play out as container costs rose during the COVID pandemic to rates never before seen.
Kraljic matrix helps us know how risks and profitability can impact a product’s marketing sourcing and supply.
Step 3 – Develop Your Sourcing Strategy
In step three, you start to develop your overall sourcing strategy. Step three will help you decide where and how to buy the product or commodity while considering the risks, cost, and profitability.
During this phase, you think about your business goals and minimum requirements for any product, commodity, or sourcing supplier. You can then list the essential criteria for the company you will be sourcing or purchasing the product or item from.
Step 4 – Start The Sourcing Process
It is now time for you to start the sourcing process. You will notice that in the first three steps, you did not contact any potential suppliers. Instead, it was all about fully understanding what you want to source and why you want to source it.
Step four is where you start to contact companies and ask them to send you a bid or a price for the items you are looking for.
Step 5 – Negotiate With Your Suppliers
Now that you have contacted several suppliers, you have probably started to narrow down which suppliers you may want to work with. In step five, you begin a negotiation phase and make the final decision about who you will buy the product or commodity from and why.
Most types of sourcing will have some negotiations. The negotiations could be for the volume, quantity, price, packaging, or other things you need for your actual product or commodity. Studying those aspects of the development will ensure that you will be getting the product at the quality, quantity, and price that you expect.
Step 6 – Implementation and Integration
Now that you have finished all the negotiations with the potential suppliers, you start telling those you have decided to purchase from who will be part of your supply chain. Here is where you begin to integrate them as one of your stakeholders.
As you begin to integrate and implement these suppliers as part of your supply chain, you should hold meetings to fully incorporate them so they understand your requirements and their success benchmarks.
Step six is when many people ignore or feel that the supplier should already understand your requirements. But the truth is that different companies will have additional requirements, so it is vital to state all of your needs clearly.
Step 7 – Give Benchmarks To The Supplier
Many people underestimate the step of giving benchmarks to your new supplier. It is a massive mistake not to share with your new supplier some benchmarks. Providing standards will ensure that you are successful, and they will also be successful as your supplier. A good company will want to do all it can to ensure success.
In the seventh step, you create benchmarks to measure your suppliers’ performance over time. Also, it is good if you can communicate to your supplier the expectations that you have.
The seven steps of strategic sourcing are set up as a process to help companies to be successful with their sourcing needs. When a company follows these simple seven steps, it will help to ensure that its sourcing strategy will be successful.
If you are interested in seeing how Mondoro can help you with your strategic sourcing – we would love to talk to you to see how we can help you.
At Mondoro, we create, develop and manufacture home decor and home furnishing products.
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Product Sourcing and Strategic Sourcing Explained
Product sourcing is when you source or look to find a supplier for a product you need. Strategic sourcing is strategically sourcing products. Strategic sourcing is not about the lowest purchase price but the lowest overall cost. Product sourcing and strategic sourcing are very similar, but strategic sourcing is sourcing with a plan in place.
You can learn more by reading Product Sourcing and Strategic Sourcing Explained by clicking here.
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Supply chain management is about the collaboration and partnerships to get the goods from raw material to the end consumer; it is about the partnerships and alliances within this process. Logistics is one part of supply chain management; logistics involves moving the goods from one place to another. The logistics providers will also store the goods and send them to the end consumer in some instances.
By clicking here, you can learn more by reading our blog What Is The Difference Between Supply Chain Management and Logistics? by clicking here.