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What is Supply Sourcing? Everything You Need to Know

All businesses need supplies to run, ranging from machinery and raw materials to stationery and spare parts. Supply Sourcing, also called Procurement, is the procedure put in place to identify and select the enterprises that can provide these supplies as per requirements in terms of pre-determined cost, specifications, quality and quantity, and above all, time schedule.

There is hardly any business that makes everything it needs on its own premises, or in-house as it is called. Some companies manufacture just a few critical components, others as much as they can, while a few do not manufacture anything at all – they are just running an assembly operation. But all these companies have one thing in common, a well-oiled supply chain, for sourcing everything they need.

What is Sourcing

Sourcing and procurement is the process of identifying the suppliers or vendors of products and services a company needs to run its operations. It is a lengthy process that involves information gathering from the market and much else. This information needs to be first collected and then analysed, and competing manufacturers compared on various parameters. This includes the overall quality and suitability of the product, materials used, tests certificates, etc. For example, an automobile manufacturer may manufacture the engine in-house, but get the fuel pump from a vendor. He has to select the fuel pump that is an optimum fit for his engine from available options.

Why Sourcing is Important?

Sourcing is important because the success or failure of a company depends on how sound is its sourcing strategy. It is not just about the quality of products, which is very important, but also the cost and how it fits in the overall pricing strategy of the company to ensure decent margins. It is also about the economies of scale and at what quantity is the best price obtained. Other than that, it is also about the supply schedules or inventory management, or how the deliveries are managed, as everything has a cost, including storage space. No company can afford to shut down the assembly line just because a component is not in stock – it has a cascading effect that spells loss.

What is explained above is the basic concept of sourcing and procurement. In reality, it is a bit complex, with many other things coming into play while getting into the details of matters like quality, specifications, costing, and the logistics of delivery mechanism, etc.

Also, there are various types of sourcing, which broadly fall into the following three types:

In-Sourcing –

When a company handles all the sourcing and procurement activities in-house with a dedicated department, it is called In-Sourcing. Here the department is responsible for conducting the market study about the vendors manufacturing the products required, verifying their credentials, shortlisting, negotiating the deals and all the tasks associated with the final delivery schedules, etc., without any external help. In-Sourcing provides companies greater control over the operation, but there are disadvantages as well.

Out-Sourcing –

Many companies today hand over the entire responsibility of sourcing and procurement to an outside agency and this is known as Out-Sourcing. Supply outsourcing is seen as having many advantages against In-Sourcing as they get expert professionals to do the job competently, which is not always possible with in-house talent or becomes prohibitively expensive to have all expertise on board. Supply outsourcing helps reduce cost of procurement while freeing the company’s resources to concentrate on their core tasks.

Global Sourcing –

The recent trend, which is actually not so recent and been around for quite some time, is sourcing globally, from which ever country that offers the best price-quality ratio. As the advanced economies started shedding labour intensive manufacturing jobs, these moved east and coincided with the rise of Asian tiger economies. Such concentration of manufacturing activity in low cost countries also brought in its wake economies of scale, driving prices down. However, it is important to check the quality while sourcing globally, and the delivery schedules. Sourcing from India is a good option today for global companies.

Your Guide to Sourcing Process

As businesses must survive global competition and keep costs under control, sourcing has assumed a critical role that can make or break an enterprise. If a well-planned sourcing strategy can help a business scale great heights, a poor supply chain can spell its doom. Each of the three broad types of sourcing mentioned above have merits as well as shortcomings. Some companies can thrive with In-Sourcing, especially if their requirements are few. Bigger companies with large requirements could benefit from Out-Sourcing. On the other hand, large multinational operations with multiple product ranges that require huge inventories can certainly benefit from Global Sourcing.

Conclusion

ESSNPS has a strong legacy of reliable sourcing from India of high-quality equipment with global clientele. ESSNPS has the ability to understand critical design, manufacturing and application requirements while being well-versed in intellectual property protection and privacy requirements. They also have the required expertise in metals and materials, quality control and the ability to deliver according to industry standards and customers’ specifications, familiarity with export formalities and documentation, with freight forwarding teams and partners for smooth delivery. In short, ESSNPS is a one-stop-shop for all Sourcing & Procurement requirements.