With dual or multiple sourcing, companies are tackling this very problem: Expert Supplier Managers they do not put everything on one card and thus make themselves dependent, but obtain identical resources from two (dual sourcing) or several independent suppliers (multiple sourcing). If due to unforeseeable events, a supply chain breaks away from our automobile manufacturer, he can compensate for this bottleneck with one of his other rim suppliers.
Companies do not necessarily have to divide the order quantity in half – they can, for example, decide to order around 60% of the products from one supplier and the remaining 40% from the other. Depending on the offer and competition conditions, you can make adjustments to the order quantities.
In total, however, you may pay more for dual or multiple sourcing, and the complexity of your supplier management increases.
local sourcing
Another possible procurement strategy is local sourcing (or domestic sourcing), which deals with the question of where the suppliers you select for your company should be located. With local sourcing, you select suppliers from your region.
The region does not necessarily have to be in a single country: in culturally similar countries, a domestic sourcing approach can also go beyond national borders. Examples include Germany-Austria or the Scandinavian countries.
If our automobile manufacturer, which has several locations in different countries, operates local sourcing, it would procure the rims for the individual plants from their respective regions. In this way, it prevents long distances, protects the environment, and saves on long delivery times and transport costs.
However, since companies have fewer suppliers to choose from, they have to forego possible price advantages and also have higher competition than with other procurement strategies.
Global sourcing
If, on the other hand, the automobile manufacturer operates global sourcing, it procures raw materials and components globally. In this way, he achieves lower purchase prices because companies from many countries compete for orders. He can also use raw materials that are not available in his own country or the country of the respective plant. In addition, he can opt for the world’s best quality.
However, he also accepts longer delivery times and takes a risk about exchange rates. In countries with high inflation, e.g. B. spontaneously raises prices. He also runs the risk that other countries z. B. are more unstable due to strikes and riots, which makes procurement less reliable.
forward sourcing
In contrast to the procurement strategies already presented, forward sourcing considers the position in the value chain. This means that companies with this strategy involve their suppliers in product planning and develop a new product together.
The forward sourcing strategy is commonly used in the automotive industry: suppliers for individual components such as e.g. for crankshafts participate in the development of new vehicle models so that they can be adapted to the special needs of the customer.
The advantage here is that suppliers have specialist knowledge of their products that can be used in product development. Furthermore, the company and the supplier form a long-term business relationship, and the high level of innovation is also an advantage of forwarding sourcing.
However, the challenges are that companies have to share their core competencies and business secrets, which means that competition with other companies is greater. Finally, the high planning effort is a disadvantage, since a lot of time has to be invested here.
Conclusion
As part of a procurement strategy, companies determine in detail how their procurement should be structured. In this post, you have learned six strategies.
However, you don’t have to decide on one of these strategies: Local sourcing might be more suitable for material A, and global sourcing for material B. The only important thing is that you think about which strategies are most suitable for your requirements and record them in a procurement strategy.
As an optimal supplement to your theoretical considerations, I also recommend an e-procurement system with which you can put your plan into practice, effectively, and digitally.
If you have any questions or would like advice on procurement strategy and e-procurement, please do not hesitate to contact us.
Why Is A Procurement Strategy Useful?
With the procurement strategy, companies take care of how and where they get their products from – i.e. they distribute their procurement to individual suppliers. The aim of the strategy is that on the one hand the company is supplied with all the necessary products and services. On the other hand, the material supply should not only be inexpensive, but also efficient.
Because it’s a general strategy, it’s not about a specific purchase with a specific quantity – it acts more like a sort of guideline for supplies of a specific item.
In summary, a procurement strategy decides
- what quantities
- which goods
- in what quality
- at what price
- and from which suppliers
should be obtained. Strategic procurement is a long-term process in which companies invest in technologies or competent specialist staff, for example, to be able to maintain long-term supplier relationships.
All important decisions that companies have to make regarding procurement are laid down in the procurement or sourcing strategy. This includes the following decisions:
- Make-or-buy decisions: Which parts do you want to make yourself, which parts do you want to source elsewhere?
- Will you like to buy individual parts and then assemble them in the company (e.g. seat covers, seat heating) or do you want to procure entire modules or systems?
- How you like to buy parts or modules from one, two, or more suppliers?
- Would you like to shop locally, i.e. close to your company, only in your own country or worldwide?
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Procurement strategies at a glance
There are essentially six different strategies that you should be aware of and consider. However, the strategies do not offer mutually exclusive alternatives. You can also implement different strategic approaches side by side.
Modular sourcing
According to modular sourcing, companies do not procure individual parts for production, but entire modules or systems. In the automotive industry, this can be entire dashboards, or in aircraft construction, entire interior panels.
As the number of suppliers that a company depends on decreases, so does the complexity of supplier management, materials management, manufacturing, and quality control. If necessary, you can skim off these cost advantages in price negotiations.
With modular sourcing, however, the dependency on the supplier increases: you will certainly find a new screw supplier faster than one who manufactures exactly the dashboards you need. multiple sourcing multiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcingmultiple sourcing
single sourcing
Single sourcing means that a company purchases certain items from only one supplier for a certain period. If we stay with the example of a car manufacturer, this means that they order the 9 million rims that they install every year from just one supplier best website to source product from mexico . This results in enormously high quantities, which can lower the sales price.
With this strategy, however, you make yourself very dependent on one supplier: If the supplier is unable to deliver for any reason (strike, natural disasters, etc.), you are not just missing a small piece, but the whole cake.
