6 Reasons Why a Sourcing Strategy is So Important in Your Supply Chain

The business of sourcing means finding the best suppliers for your goods.

It involves investigating what manufacturers and suppliers are out there in the global marketplace, establishing a relationship with them and using them to build great products for you to sell to your customers.

As an experienced sourcing company in the Asia-Pacific, with offices in China, Vietnam, Papua New Guinea and Australia, we’ve seen the benefits that a robust sourcing strategy brings to our clients. Whether you run a small start-up company or a global corporate, we’ve outlined 6 reasons why a sourcing strategy is so important in your supply chain.

A well-executed sourcing strategy saves costs across your supply chain, brings in revenue and achieves greater profitability.

The primary goal of a sourcing company is to negotiate the best prices for high-volume, yet high-quality, goods and services. Obtaining well-priced sourced goods means your business can keep the price of its own products down – yet still within profit margins – thereby encouraging customers to purchase more off your shelves.

The ultimate result is enhancing your bottom line – not only are you saving on existing costs, but generating more income in the long-term.

Sourcing is critical for your supply chain because it enhances the efficiency of its operations. Well over half of a business’ costs comes from purchasing supplies and the logistics to transport the supplies from point A to point B.

But, without a sourcing strategy to bring these two components together, purchasing and logistics won’t co-ordinate. One 2014 study called Bending the Chain found strong evidence that uniting these elements creates “heightened levels of both functional and financial performance”.

Companies that do this, the study argues, “are able to bend the chain of plan, source, make, and deliver to enable alignment …The result is that they serve customers better with lower operating expenses, cost of goods sold, and inventory”.

Not only does efficiency create a seamless process that minimises delay, it goes right back to achieving the cost savings we discussed above.

Sourcing is not about picking the first supplier you see, taking one look at what they charge and saying ‘Yep, they’ll be good enough’.

Rather, it’s about analysing each ‘candidate’ – what they can offer, how they negotiate, their values, profiles, capabilities, management, track record and reputation. It’s similar to recruiting somebody for a job. For example, when looking at a supplier’s capabilities, ask questions like:

• Who are their current clients? If multinational corporations have successfully been using them for many years, that’s a great sign.

• What are their hiring practices?

• Are they located in a geopolitically stable country?

• What facilities and security measures have they put in place?

• How quickly can they recover from an interruption?

Your business will need a supplier that communicates well and that can deliver high-quality goods on time. Suppliers to avoid are those that are more likely to rush manufacturing, develop shoddy products and drive up return rates.

Importantly, you’ll likely need a supplier that is compliant with modern slavery laws, which are becoming more prevalent around the world. This involves identifying – and avoiding – suppliers which carry out actions such as forced labour, servitude and human trafficking.

Countries such as the United States, the United Kingdom and Australia have stringent laws against modern slavery in commercial supply chains, so it’s vital you choose a fair, humane supplier.

A sourcing strategy is important because it can create long-term, stable relationships with the right supplier – who, with time, can become the perfect business partner.

A long-term relationship with a supplier is critical. Switching suppliers is disruptive, time-consuming and expensive to everybody in your team. A collaborative and win-win relationship with a supplier is what your business should be striving for.

Getting the right suppliers, which we discussed above, is key to establishing such a relationship. If both you and your suppliers work ‘in sync’, it’s much more likely that both of you will succeed. If your supplier wants you to succeed, chances are they’ll strive to succeed themselves.

A long-term relationship demands measuring your supplier’s performance, constant two-way feedback and also asking your customers what they think of the product. By improving each other’s practices, you can help each other achieve commercial success.

A sourcing strategy, importantly, can help you manage risk across the supply chain. A sourcing process will force you to think about the future, thereby making well-thought decisions and long-term plans to place your business on the path to success.

If you have no strategy, and your supplier runs into a problem – the chances are you won’t catch it, and the problem won’t be solved quickly and efficiently.

Take an example: horsemeat. In 2013, a score of companies and supermarkets across Europe suffered massive commercial and reputational loss when they advertised foods containing undeclared horse meat. Blame was quickly shifted to suppliers, but it demonstrates a classic case of businesses failing to properly manage risks in their supply chain.

A robust sourcing strategy can go a long way to preventing such misfortunes.

Everything we’ve discussed above ties into the 6th reason why a sourcing strategy is so important for your supply chain: seizing a competitive advantage.

In a rapidly expanding, fast-paced international 21st century marketplace, the competition in virtually all industries is only getting more and more challenging.

A well-executed sourcing strategy can help your business reduce costs, develop high-quality products, preserve a constant stream of creativity and innovation whilst also minimising the time you get your products onto the market. The result is a more competitive business that delivers excellent service to its customers.

At The Sourcing Co, we’re specialists in developing large-scale corporate sourcing strategies across complex supply chains. So, no matter how big or small your business, we can help you execute the most cost-effective sourcing plan to take advantage of everything we’ve discussed above.

Our clients include some of the world’s leading corporations who’ve placed their trust in us to locate the right suppliers to meet the high-volume shipping demands in their supply chains.

Get in touch with our team at the one-stop sourcing company across Asia, and we’ll be happy to discuss building the right sourcing strategy for you.