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Importance and Purpose of Strategic Sourcing

A Supply Chain is the lifeline of any business – the better the supply chain, the greater the probability of a profitable enterprise; a poor supply chain, on the other hand, can adversely impact profitability, putting survival at stake. The purpose of Strategic Sourcing is to build an effective supply chain, and the importance of equipment sourcing is in the fact that the foundation of a good supply chain is laid by a successful strategy.

Strategic sourcing is not just about identifying a set of suppliers at the lowest possible price, nor is it about paying a high cost for over engineered products in the obsession for quality. A good sourcing strategy considers all aspects of the supply chain – products and equipment, logistics, manufacturing, distribution, warehousing and other related services including IT and ERP systems. It is more about a holistic approach to consider all the requirements in terms of quality and quantity and then procure at the best total cost, rather than the lowest cost. In doing so there are a few factors to consider:

Cost Management

A wider database of reliable vendors with proven ability helps in getting a much better price. Sourcing from India is on the increase globally thanks to the cost advantage – global sourcing or supply outsourcing, is the norm rather than an exception. Economies of scale matter when it comes to pricing and local suppliers do not necessarily pass muster on this front. Even within the domestic suppliers, clusters specialise in certain products like castings and forgings, machined parts or welded assemblies where casting the net wide ensures both, better quality as well as reasonable prices. An added benefit is the experience of such vendors and their ability to always be familiar with the most recent trends.

Supply Stability

Negotiating the best price for a given quality is just one part of the process, it is the very purpose of equipment sourcing strategy. Ensuring supply stability is equally important as an erratic supply schedule can throw the production process out of gear. Availability of raw materials, power and transport infrastructure, political stability of the country in case of global sourcing, are among the factors that can quickly nullify the cost advantages in case of adverse circumstances, jeopardizing the best laid plans. A good sourcing strategy takes into account all such possibilities and has the necessary backup option.

Risk Management

One of Murphy’s laws states if something can go wrong, it will – so risk is a constant and the supply chain is no exception. So a robust supply outsourcing strategy must factor in the risk elements which could come in various forms – financial (fraud), natural (calamity), political (sanctions), reputational (quality), man-made (sabotage) or increasingly, cybersecurity (negligence). While it is essential to consider all these at the outset, not all are predictable and hence a company must have a Supply Chain Risk Management (SCRM) in place to identify, assess and mitigate these risks in order to prevent disruptions.

Greater Production Capacity

An efficient supply chain not only streamlines production, but also contributes to increased productivity. Apart from the cost advantage, strategic sourcing of equipment also saves time, enabling increased production by eliminating unexpected downtimes caused by delayed supplies. When sourcing from India, the cost advantage extends to all the individual parts and assemblies that go into the product thanks to the vast network of manufacturers integrated into the vendors’ own supply chain. With a well-knit supply chain, scaling up production becomes easy.

High Quality

Professional sourcing companies have painstakingly built their vendor database with proper due diligence of their capabilities and quality aspects, with adherence to relevant standards. For these intermediaries maintaining the highest quality is absolutely essential and they are always on the lookout for stronger partners to continuously upgrade the technology as well as excel in quality. The price advantage comes not at the cost of quality but on account of the lower costs of raw materials, labour and production, without any compromise on quality.

The importance of sourcing strategy can never be overstated. As companies today compete globally, strategic sourcing becomes a key differentiator between success and failure. The efficiency of a good supply chain depends on it being flexible and agile. The supply chain should be flexible enough to face anticipated situations like adverse weather conditions, which calls for planning; but it should also be agile to deal with unexpected developments like political decisions or terrorist activities causing the disruption.

ESSNPS has an excellent track record in the field of strategic sourcing to help companies big and small to build highly efficient supply chains that are both flexible and agile, avoiding the risks of putting all the metaphorical eggs in one fragile basket. It has a team of professionals who are experts in all areas of engineering as well as logistics, with decades of experience working with global companies. ESSNPS is the ideal partner for equipment sourcing from India, an excellent resource for a global sourcing strategy.