In an ever changing and competitive business world, growth and a desire for continued growth is common, and to achieve this, industrial sourcing is a very good technique that more and more companies adopt.
The search and selection of suppliers in territories where products are produced at more competitive prices – such as Asian countries – is an excellent way to reduce costs whilst expanding benefits; However, industrial sourcing has its risks and a good strategy is essential for success.
General factors to consider in a sourcing strategy.
Managing an operation well is not always enough. The value of the purchase is based on discovering, comparing and negotiating. For this reason the strategy of Sourcing (or Strategic Sourcing, as more and more people prefer to call it) will depend on different factors.
- The study of cost reduction
- The study of the supplier market and its competitiveness.
- The understanding of the internal operational process
- The production risks and how a defect can affect the final result
- The company’s real need for external supply along with the possibility of generating new synergies with other manufacturers.
- The production capacity with different suppliers and final cost
- The production chain management capacity, quality control and logistics.
- The technology and management software
As in most business activities, the majority of the points mentioned will be 100% successful only when the process is managed in an astute manner. Because of this, there are many companies that prefer to rely on a specialized intermediary, such as S3 Group, to ensure their success in importation.
This would be the case, for example, of “understanding the internal operating process”. This does not only mean carrying out an in depth study of how suppliers work in Asia, but also anticipating any possible problems during the process which are caused by elements that may initially seem foreign (language, cultural customs, etc.) and that may end up becoming a problem.
What will we achieve with a well-applied sourcing strategy?
The results of industrial sourcing are clearly quantitative, so it is not difficult to see if our strategy has been successful.
Cost savings: without doubt the most valued benefit for any company. If we have a good industrial sourcing strategy, the first advantage that we will benefit from is a reduction in our production costs.
Greater efficiency in the process: The sum of the reduction of costs with better internal organization should lead to a greater efficiency of the process.
Increased coverage of our needs: outsourcing the manufacturing process at a low price should give us the opportunity to reorganize our budget to cover a greater number of needs in our product.
Global involvement of the company: this can sometimes be costly you to understand, but it is essential. For a sourcing strategy to work well, the involvement of the entire company is necessary, and achieving this synerg is a valuable benefit. The purchasing department is the main lead in global involvement, but there are many actors within a company that must work together in order to ensure that industrial sourcing is a success.
What can fail in our sourcing strategy?
As specialists in industrial sourcing, we see dozens of companies every year that come to us after a previous bad experience in sourcing. The reasons for their failure are very common.
Lack of strategy: the most obvious of all. Changing our production model (relocation would be the exact word) is not as easy as it may seem. As we have already pointed out, this requires the involvement of many departments in a company, coordination of times and resources, reviewing procedures and the good management of this change; Not doing so ends in failure.
Strategy not aligned with the objectives of the company: this is different from the previous case, but just as serious. Getting started in industrial sourcing is a transition and should be viewed as such. Considering a start-up, evolution and improvement plan is essential. When this does not happen, it tends to fail.
The Management of the company is opposed to change: oddly enough, the purchasing department sometimes proposes to try industrial sourcing as an option, but does not have the support of the company management team. When small problems begin to emerge, the initiative fails.
Limited technological resources: In the 21st century, this problem is a reality. The purchasing department must have the technology to deal with everything that industrial sourcing entails (control over the processes and results, and integration with other departments, etc.)
Before taking risks, look for a specialist in Sourcing.
As we have seen throughout this article, industrial sourcing is not for everyone. It is simply not enough to have a good team of negotiators or staff who speak perfect English and some knowledge of an Asian language. In fact, we would dare to say that even with people with International trade training, but with little experience, sourcing is a risky option.
Here at S3 Group we are the intermediary partner who hundreds of companies from all over Europe trust each year to carry out their Strategic Sourcing successfully and who are able to benefit from all the advantages of this growing business practice.