Sourcing in business means to select goods or services to help to run the business smoothly. Sourcing involves the stage of evaluating relations with new and old suppliers to improve the overall efficiency of a company. As the world has moved beyond geo-political boundaries, sourcing materials and services have become much easier. Strategic sourcing companies look for procurement support and strategic sourcing.
The main jobs of a sourcing firm include finding quality goods and services, negotiating the cost and payment terms and quality testing. Sourcing is a very important part of the supply chain as it helps in cost management and minimizing risk. Selecting the right agency that can easily fit into the existing company structure is very crucial.
Why Is Right Selection Important For Sourcing?
Globalisation has led to the trend of emerging market sourcing and if that can be leveraged by a company, it would help in cost reduction to a great extent. Choosing the right sourcing firm for the required services is very important because the right firm will provide good quality products or services and the business can have enough time to focus on the core projects. A good sourcing firm will help the business in the following ways
- Reduce operational costs
- Provide expertise in many non-core task fields and help the business flourish
- Ensure the overall productivity increases and supports the business in providing quality output
Organizations should choose sourcing firms that meet their needs and preferences.
Factors To Be Considered Before Choosing A Sourcing Firm
Needless to say, strategic sourcing companies can prevent clients from making grave mistakes which might adversely affect the business. Choosing the right sourcing firm is not an easy task and needs some level of research and considerations. If your company is planning to source externally, you need to check a few things first. Companies have the option to choose from different sourcing providers. Some of the things that are recommended to be considered before choosing one provider are listed as follows:
• Knowledge –
This is the first thing you need to look for. Sourcing firms should have a solid knowledge about the products they deal with otherwise there can be numerous issues in the future. Sourcing firms should have a good idea about the production process and the quality control measures and should be able to identify quality issues before delivery.
• Landed Cost –
While looking for outsourcing, the company has to calculate things apart from per-unit cost. There are a lot of other important factors that affect the cost like fees, transportation, brokerage cost, and insurance and in case of global sourcing customs and duties. It is advisable to do scenario analysis and calculate costs for the worst cases too.
• Experience –
Sourcing firms should have relevant experience in your business. It may be possible that the firm has years of experience but in a different field. Such a firm will not be a good choice. So, count years of relevant experience before choosing a firm.
• Quality Of The Product –
Product quality is the most important thing in a sourcing business. It is better to go for well-known sourcing providers which have a reputation for offering superior quality products. Defective products can create a lot of problems as the company has to face the issue of reverse logistics or would need to sell it at a discount or suffer loss. You should choose a firm which provides good quality products at cheaper rates.
• Product Offerings –
It is important to find a service provider to perfectly fit into the current business model of the company otherwise there may be a clash in the strategic sourcing initiatives. It is advisable to go for a service provider who offers consulting, implementation as well as tools. Instead of contracting multiple companies, find one which can handle all requirements so that your company does not need to manage multiple contracts from different vendors.
• Finances –
The main cost is the cost of goods or services. Apart from that, the other financial aspects include credit terms with the sourcing provider and how it will affect the cash-to-cash cycle of your company.
• Focus Markets –
Before choosing a company, enquire about the markets which they focus on and the customer base. Different markets have different cultures and taste of products. It is therefore recommended to make sure that the sourcing firm is on the same pages as your company.
• Responsiveness Of Supplier –
Time to market is very important in sourcing decisions. Sometimes when there is a high demand from the customer end, you need to ramp up the production process. Sourcing firms should be flexible enough to accommodate such changes. Some sourcing providers act as agents of different suppliers with whom they have done business for a long time. The quality of the suppliers and the cost of materials may be compromised in this process. Make sure that your sourcing agency does not have any vested interest.
• Logistics & IT Capabilities –
Sourcing providers must have a transportation infrastructure. If the logistics capability of the company is not reliable, there are high chances that the goods might not reach on time. Companies that have real-time information sharing capability are the best to partner with. There should always be an effective communication system between suppliers and buyers.
• Location –
Location can have a direct influence on supplier relationships and lead time. If it is a global sourcing company, countries which are closer have the benefits of common time zone, culture and language.
• Trade Regulations –
Some countries have higher ease of doing business while some are rigid so international trade regulations need to be checked. Countries that have higher ease of doing business should be considered if your company is planning for global sourcing.
Referring to Strategic sourcing companies can help to save a lot of valuable time for the clients. The above points represent some of the key factors which must be noted while choosing a sourcing firm. It is advisable for a company to make informed decisions so that there is an opportunity to enjoy a profitable business.