Essentials for building a stronger supply chain and strategic sourcing practice

Companies looking to develop their supply chain resources must not only understand what supply chain is, but the strategic sourcing best practices that support its efforts to ensure success.

Supply chain is essentially the group of resources engaged in procuring a product and/or service from a supplier to the customer. This would include end users, suppliers and their manufacturers, specs and requirements and any other pieces of information needed to obtain the requested product or service. Having all of this identified up front can produce a cost effective result with shorter turn-around and lead times. 

Supply chain professionals should familiarize themselves with the various market places they are sourcing and follow some best practices that will guarantee a productive venture. Presented below are a few key tips that will result in supply chain’s success:

Understand the industry – you may think you know who the major players are in a specific industry based on past research or experience, but demand changes can impact supply base, production, and potentially product specifications. A perfect example of this would be telecommunications – where businesses and consumers are always looking for more bandwidth and services at lower costs. There are so many global, national, and regional players now who offer a variety of flavors for all products and services. Unless you have extremely specific requirements, you probably have a lot of options to choose from. These suppliers want you to learn about their service offerings so make sure to invest some time understanding what is available to you.

Understand costs – in addition to knowing who the suppliers are in a specific industry, you will want to understand all of the pricing elements that go into producing the product or service you are looking for. In sticking with telecommunications as an example, suppliers will lease facilities from one another, share infrastructure, or negotiate wholesale deals. Although the result to the customer is the same service, pricing will be different and in some cases customer service and support will be better. Some of the top players in the market are looking to increase revenues with newer technologies and are not as interested in selling older services. Therefore, you might consider a smaller player who is using the same physical service but can provide it at a lower cost and offer you the same or better support. Make sure to also consider the potential soft dollar savings (savings from not spending but savings time) and value adds such as:

• Payment terms
• Additional resources or support
• Custom reporting or billing platforms
• Inventory support
• Whatever the supplier is willing to invest

Competitive advantages – the larger the supply base, typically the easier it is to negotiate. However, understanding what each supplier is looking for out of the deal will give you a leg up in your negotiations. For example, a lower tier supplier may want to grow their customer base in a specific industry or region and simply to get your name on their roster is incentive enough to offer you extremely competitive pricing. A top tier supplier may be looking to grow the business with you and they will propose a great price just to get in front of the decision makers.

These tips are just a few best practices that can be incorporated in your supply chain plan and improve your overall strategic sourcing initiatives.