Supply chain - sourcing

This is part two of a five-part series of insights about Supply Chain. Part one was an overview of what supply chain means and the four pillars of an effective supply chain solution – sourcing, logistics, distribution, and customer fulfilment.

In this second part we take a closer look at the fundamentals of sourcing.

Sourcing - what does it mean?

Even when breaking supply chain down into specific elements each area can mean different things to different people, none more so than sourcing. I would advocate that getting souring/procurement right underpins everything that happens within a company’s supply chain; this is an area that needs focus, attention and a certain skill set. Get sourcing wrong and you are in for a world of pain.

What does sourcing mean? Let’s start with a basic definition.

‘Sourcing helps businesses obtain the best quality products or services at the most competitive prices.’

Not too much to argue with there? Simple enough, find the best supplier, negotiate the best price and away you go! Not rocket science and wouldn’t take an expert to get this sorted? Except, how do you know who is the best supplier and what the best price is?

A slightly broader view.

‘Sourcing is the process of finding and acquiring goods, services, or materials from suppliers. It involves identifying potential suppliers, evaluating their capabilities and prices, negotiating contracts, and managing supplier relationships.’

A little more in-depth but still not overly complicated? A bit more work to be done and requires more knowledge/experience/research, how hard can it be? I would venture to say that mistakes made in sourcing can have devastating consequences for a business.

Selecting the wrong supplier can lead to any, or all, of the following.

• Increased Costs: Poor procurement decisions can lead to paying higher prices for goods or services or incurring additional costs due to inefficiencies.

• Low-Quality Products or Services: Selecting unreliable suppliers can result in substandard products, which can affect the quality of the final product and ultimately customer satisfaction.

• Delays: Inefficient procurement processes or unreliable suppliers can cause delays in delivery, impacting production schedules and customer commitments.

• Inventory Issues: Poor procurement can lead to overstocking or stockouts, both of which can disrupt operations and increase holding costs.

• Reputational Damage: Consistently failing to meet quality or delivery expectations can harm the company’s reputation with customers and partners.

• Legal and Compliance Risks: Inadequate procurement processes might lead to non-compliance with regulations or contractual obligations, resulting in legal issues or fines.

I am not attempting to scare monger but doing business, winning and keeping clients can be hard enough without causing your own problems. Getting sourcing right ‘first time’ where possible is critical. No point ‘selling loads’ if you can’t deliver on time and in full?

So how do you get it right ‘first time’?

Getting it right

Ensure that the person undertaking the souring fully understands their brief, obvious but fatal if they don’t understand what is required. Exactly what product or service is required, margin expectation/parameters, timelines – when does the product or service need to be available/ready to go live, sustainability requirements etc., are just some of the crucial details that the individual/individual’s needs to be aware of.

Once the above strategic plan is in place the next but most important factor is who? By this I mean does the person/persons undertaking the sourcing have the necessary skill set? Good quality sourcing requires some, if not all of the following abilities.

Must have: Negotiation, contract management, cost & financial analysis and supplier relationship management (SRM).

Good to have: Market intelligence, category management, risk management and sustainability understanding.

In days gone by ‘sourcing’ was often referred to as ‘buying’ and suppliers were routinely ‘bullied’ and treated as if they were lucky to enjoy the business they were being offered. Those days are largely gone and developing a ‘partnership’ relationship is far more productive for both parties. If you can develop mutual trust and a shared vision you are likely to have a more productive long-term relationship that benefits both parties.

As such my belief is that the ability to foster supplier relationship management (SRM) is now the singularly most important skill set required in the people that source for any business. If you don’t have someone in your business that does not have this ability then find someone who does, it’s that critical. It may not be that you need someone full time, so look at fractional managers who can facilitate in the short/medium term or perhaps more positively identify someone within your business who can be trained/mentored to the required level.

There should be no short cuts to sourcing for the reasons previously stated, if sourcing products or services, getting it right ‘first time’ is vital.

https://www.tsp-ukltd.com/purchasingandsupplychain-workshops

Steve is a proven and experienced business leader and senior manager. With a 35-year track record in leadership roles, Steve has managed and led teams from small, project teams to national teams of over 200 people.

A specialist in operations, logistics and supply chain management, Steve’s wider commercial experience includes business ownership and business mergers, and includes personal leadership roles from single-site to multi-location businesses with sales in excess of £200m per annum.