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Steps in Sourcing – Your Guide to Strategic Sourcing Process

A robust supply chain for sourcing of equipment and other services is essential for running a successful enterprise. Strategic sourcing is the foundation of a good supply chain and it is important companies pay adequate attention and devote enough time for this critical business requirement. Unlike tactical sourcing, which is about buying something, preferably at the lowest price without any long-term consideration, strategic sourcing is about building relationships with the vendors, and benefit from the total cost over the product life cycle rather than buying at the lowest price.

While there are companies that prefer to do their own sourcing through an in-house department or a subsidiary or Group Company, increasingly outsourcing is becoming the norm for the various benefits this brings to the table. An added advantage is, professional sourcing companies like ESSNPS not only provide end-to-end sourcing and procurement services, but also work with the client diligently, through all the steps to help build a robust supply chain through strategic sourcing. ESSNPS has over the last several years built a huge database of vendors in various engineering fields for sourcing from India.

So what is the process ESSNPS follows to execute a successful sourcing strategy? Before going into that, it is important to understand three critical steps that form the basis of a good sourcing strategy:

Data & Research

These are closely related terms as you need data for research – data about the company and its requirements. This includes all the information about what is required to be procured, why and when. Everything must be documented – all the requirements by item, type – electrical/ mechanical, critical/non critical, materials/services, assembly/sub assembly, parts and components, down to the details of category and code. This is easier said than done – will need enough manpower with the relevant experience and domain knowledge to get everything right.

Market Study

The next step is to understand the supplier market and how it works. Here again data and research is important to study and understand each supplier and her capability as well as credibility – financial strength, technical prowess and the ability to deliver on time. The suppliers could be local or global, including from overseas. Talking to the suppliers and understanding the risks is important before proceeding further. There is invariably the price comparison with existing suppliers or between two potential competing suppliers. Again, meticulous records must be maintained.

Analysing the Existing Process

The third step is important as it is time to check, compare and verify in order to set the benchmarks for products as well as suppliers. It helps to cast the net wide to get a better deal, the process of talking to multiple suppliers helps in filling the knowledge gaps, checking innovations that help and getting the best deals. It is essential to remember it is not about the lowest cost but the total cost over the product life cycle. Looking out for any hidden expenses, or for that matter the logistics costs, also comes into play here.

Companies that do their own sourcing must undertake these three steps and more. To those following the Outsourcing model, professional agencies like ESSNPS have the depth of expertise and numbers on roll to undertake these steps on behalf of the sourcing company. Once this spadework is complete, the process of sourcing and procurement begins. The process is detailed and elaborate, with nothing left to chance, and all aspects are considered in the following 15 steps:

  1. Customer Enquiry

Customer sends the RFQ, setting the process in motion. 

  1. Technical Evaluation

Scrutiny of the RFQ for details like scope and technology. 

  1. Supplier Identification

From the available vendor resources or identifying a new one. 

  1. RFQ to Supplier

Sending the RFQ to eligible suppliers and/or person(s). 

  1. Specification Review

Discussion with the supplier about the RFQ contents. 

  1. Quotation from Supplier

A complete quotation along with production details, samples, etc. 

  1. Comparison

Should-cost analysis considering industry standards and norms. 

  1. Commercial Finalisation

The terms between customer and supplier to finalize the deal. 

  1. Contract Signing Off

Successful conclusion of the first part of the process. 

  1. Project Management

Specified milestones achieved by the supplier through QAP & FAT. 

  1. Mass Production / SOP

Process finalization after the PPAP samples are approved. 

  1. Process Improvement

Additional process improvements, PPM reduction, etc., as applicable. 

  1. General Documentation

Procedural formalities, export procedures, duties, etc. 

  1. Logistics Planning

Container planning, coordination with freight forwarders, etc. 

  1. Delivery to Customer

Completed the process with all the steps per agreed incoterms. 

The importance of strategic sourcing for the success of an enterprise is evident. Given the complexities involved, more and more enterprises today outsource sourcing and procurement activities for professionals. ESSNPS has demonstrated proven capabilities over the last 15 years and today boasts a global clientele based on its end-to-end solutions.