10 Example of Sourcing Strategy for Supply Chain

Oct 08, 2023 Chapter 1. Sourcing

Supply chain sourcing is a critical component of managing your business’s supply chain effectively. In this blog, we’ll explore how to implement these best practices in your business with global sourcing.

 

Sourcing encompasses the entire process of evaluating and selecting suitable suppliers to help your organization stay competitive in the market. Quality and cost savings are essential criteria when choosing a sourcing partner.

It’s important to note that sourcing focuses on direct goods and services, while procurement deals with indirect goods.

 

 

Supply Chain Sourcing: An Essential Aspect

Sourcing plays a pivotal role in your supply chain, as it involves finding high-quality products at competitive prices for your business.

In today’s competitive landscape, business owners are constantly seeking reliable suppliers to streamline the sourcing process.

In fact, 70% of sourcing and procurement professionals use suppliers to access new technology services or expand beyond their core business model. Depending on your company’s size and long-term goals, there are various strategies you can adopt.

In this blog post, we’ll provide you with a comprehensive overview of sourcing, including its definition, types, and how it differs from procurement.

 

 

What is Supply Chain Sourcing?

Supply chain sourcing refers to the process of finding suppliers to provide the products and services necessary for your business’s daily operations. This process also involves evaluating and selecting suitable suppliers to maintain your organization’s competitive edge in the market.

While sourcing may appear straightforward, it can be a complex process. Choosing the wrong supplier can have costly consequences, so companies carefully assess several factors before making a decision. The supplier selection process includes:

  • Identifying sources of quality goods and products
  • Negotiating contracts
  • Establishing payment terms
  • Conducting market surveys
  • Quality testing
  • Outsourcing goods
  • Establishing standards

Following these steps puts you on the path to creating an optimized sourcing strategy.

 

 

Example of Sourcing

There are various sourcing examples that businesses can adopt based on their specific supply chain needs.

Consider factors such as long-term cost-effectiveness and product quality when choosing the right sourcing approach.

Here are some characteristics and examples of sourcing:

  • Global sourcing: This involves purchasing raw materials or essential items from other countries worldwide, offering advantages in terms of affordability and quality.
  • Low-cost country sourcing: This strategy focuses on cost-effective sourcing of raw materials from countries like India and China.
  • Prime/sub arrangements: Companies rely on outsourcing agents who, in turn, subcontract the sourcing work to other firms.
  • Captive service operations: A group of companies or subsidiaries responsible for procuring goods.
  • Conventional agreements: Traditional sourcing methods involving direct agreements between two parties, making it the simplest sourcing type.

 

Understanding these concepts is crucial for the smooth operation of your daily warehouse activities, and they offer additional benefits, as we’ll explore in the following sections.

 

 

Why is Supply Chain Sourcing Important?

For businesses of all sizes, factors like cost structure, profit margins, and competitiveness are critical for sustained success. Supply chain sourcing is instrumental in achieving these objectives, enabling companies to establish efficient and consistent supply chains.

Cost Management

Strategically implemented sourcing benefits both buyers and suppliers. They can negotiate lower prices for larger purchase volumes, resulting in reduced costs and competitive sales prices.

Stability

A strong supplier relationship is vital for business operations. When companies find reliable suppliers, both parties can build a mutually beneficial partnership. Buyers can depend on suppliers for consistent product quality.

Risk Management

Establishing a solid buyer-supplier relationship enables effective risk management. Both parties can rely on each other for transparency and accountability.

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The Supply Chain Sourcing Process

While sourcing involves several processes, their effectiveness lies in creating an optimized supply chain. Let’s take a closer look at these processes:

  1. Selecting a Supplier & Strategic Planning

The choice of supplier significantly impacts a company’s reputation and operations. Companies should carefully select suppliers based on factors such as experience, cost-effectiveness, customer service, delivery time, product availability, and recent customer reviews. Suppliers often become long-term business partners, emphasizing the importance of selecting reliable and trustworthy ones.

  1. Securing a Supplier

Securing a supplier involves taking actionable steps to ensure the selected supplier can benefit your company. This step includes thorough research to assess a supplier’s reputation, customer reviews, and necessary certifications. Negotiations should result in favorable terms for both parties, including payment and delivery agreements.

  1. Choosing a Supplier Delivery Model

Depending on your agreement, several delivery models are available:

  • Just-in-time model: Supplies are received as needed.
  • Continuous replenishment: Ordering supplies in small batches based on inventory demand.
  • On-demand: Supplies are produced upon request.
  1. Creating a Contract

A well-drafted contract should include all agreements, such as delivery models, payment terms, contract duration, and more. Both parties should sign the contract for legal assurance, indicating their commitment to fulfilling their obligations.

 

 

Pros and Cons of Global Sourcing

Many companies adopt international sourcing to reduce production costs, but this comes with limitations in quality control. Let’s delve into the advantages and disadvantages of global sourcing:

Advantages of Sourcing

  • Reduced production costs over the long term.
  • Increased manufacturing efficiency.
  • Optimization of the supply chain for effectiveness.

Disadvantages of Sourcing

  • Lack of quality control due to distance.
  • Supply chain delays.
  • Potential communication issues.

 

 

Supply Chain Sourcing vs. Procurement: Procurement Strategies

Procurement encompasses the full process of sourcing and using suppliers to gather all necessary materials for products, services, and indirect costs.

It involves ordering, paying for goods, and receiving them. While both sourcing and procurement are essential supply chain components, they differ in their focus. Sourcing centers on direct goods and services, while procurement deals with indirect goods.

Companies can choose to combine sourcing and procurement departments for effectiveness or select the most suitable approach for their needs.

 

 

Examples of Sourcing

 

 

Top 10 Examples of Sourcing Strategy 

 

Strategic sourcing helps companies secure goods and services while focusing on ESGs and D&I. Here are the top 10 companies that excel in strategic sourcing examples:

10. BMW Group

BMW has a strong strategic sourcing program, emphasizing long-term supplier relationships, efficient supply chains, and cost reduction. They are also committed to sustainability and innovation.

9. Nestlé

Nestlé’s strategic sourcing program prioritizes sustainability and responsible sourcing. They work closely with suppliers to ensure ethical sourcing and have a supplier relationship management program in place.

8. Johnson & Johnson

Johnson & Johnson focuses on cost reduction, quality improvement, and innovation through strategic sourcing. They use advanced analytics to build strong relationships with key suppliers and promote diversity in their supplier base.

7. General Electric (GE)

GE uses advanced analytics and supplier relationship management to enhance performance. They seek cutting-edge technologies and materials from suppliers while maintaining cost control and risk management.

6. Walmart

Walmart’s strategic sourcing practices have made it the world’s largest retailer. They use analytics to build strong relationships with key suppliers, drive operational efficiencies, and promote collaboration and sustainability.

5. Coca-Cola Company

Coca-Cola maintains its position as a global beverage leader with strategic sourcing. Their procurement strategy includes supplier diversity, long-term relationships, and advanced analytics for supply chain improvement.

4. Amazon

Amazon revolutionizes retail with its massive scale and strategic sourcing. They negotiate better prices, use data analytics to improve supplier performance, and focus on efficiency and innovation.

3. Toyota Motor Corporation

Toyota’s strategic sourcing strategy focuses on strong supplier relationships, technology-driven supply chain improvements, and JIT inventory management. They prioritize high-quality components and long-term partnerships.

2. Procter & Gamble (P&G)

P&G emphasizes strategic sourcing as a key part of its business strategy. They work closely with suppliers to reduce costs, improve quality, and enhance innovation, all while promoting sustainability.

1. Apple Inc.

Apple maintains its competitive edge in technology through innovative and socially responsible strategic sourcing. They seek cutting-edge technologies, prioritize design and social responsibility, and promote diversity and inclusion in their supplier base. Apple’s strict code of conduct ensures ethical and sustainable practices among suppliers.

These companies showcase how strategic sourcing can drive success by focusing on innovation, sustainability, and collaboration.

 

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