What is sourcing in logistics?
Almost every known company's entire process of sourcing products or services is considered the first step in the supply chain process. The notion of sourcing depends on striking the right balance between the quality of your products and the raw materials you require with their nature of affordability.
Traditionally, sourcing refers to finding the most suitable supplier who can provide you with the best quality of goods or services. The goods or services get offered to businesses at a price that allows them to profit. Sourcing goes hand-in-hand with procurement management.
There are three vital factors that businesses need to take care of during sourcing, and they are:
- The cost structures
- The profit margins
- Competitiveness of the markets
It is vital to pay attention to these three factors, irrespective of the size and category of your business.
What is the importance of sourcing?
Sourcing is a vital process for businesses as it allows you to establish consistency and reliability in the supply chains.
Thus, not only does your business always remain stocked with the required supplies, but you can also fulfill the needs and demands of your customers and satisfy them. Strategic planning becomes essential in the sourcing process, as it is central to cost structures, profit margins, and competitiveness.
Once businesses work on a strategic sourcing process, it will benefit both the buyers and the suppliers. It allows buyers to negotiate lower unit prices for a high-volume purchase. Thus, you can reduce the cost of goods, and the retail prices can remain competitive.
Your suppliers will benefit from it as they will have a consistent outlet for their goods.
Once you can find the right source for your products, it starts to work as a partnership. Both the parties begin to rely on each other, and the supply chain is kept intact.
With time, a close relationship between the two parties can lead to higher quality and efficiency since suppliers and customers start to work as a cohesive unit.
Tip n°2 : Bring in your key stakeholders
Many businesses often make mistake involving their key stakeholders at a much later time interval in the logistics sourcing process.
You need to realize at this point that you must have your key stakeholders on board as soon as possible. The later you involve them, the more challenging it will become for you to implement your logistics sourcing strategies.
In the process of your logistics sourcing event, your business is likely to have mainly two different kinds of stakeholders – internal and external.
Let us take a look at both of them at a glance:
- Internal Stakeholders: Your internal stakeholders comprise the logistics department operating in and outbound logistics. It generally includes the planning of transport facilities and warehouses. Based on the kind of role of logistics, some businesses often find it beneficial to incorporate customer services and sales.
- External Stakeholders: Your external stakeholders, on the other hand, serve as logistics service providers to your company, as well as your key customers. The present logistics service provider of your business must remain aware of the service that is "on the market."
For businesses that think logistics services to be valuable for the growth and development of the business, the involvement of valuable customers is always advisable. Your company can then easily discuss and work on the expectations that they may have from your company.
Tip n°3 : Map your spends
After your business has established a consistently procured and reliable database to fall back on, you can then eventually start to work on mapping your spending. It will help you understand your business's requirements much more efficiently than ever before.
You can map your spending based on region, category, Pareto distribution, and your present suppliers. These are some of the best ways to spend mapping.
In this process, you work on visually comprehending the immediate and midterm capacity required in every category. It will also help you understand how spending is distributed judiciously in your supplier base.
Tip n°4 : Work on analyzing your market
The main purpose of analyzing your market is to properly understand the cost drivers and the demand indicators that act to steer the prices of each of your suppliers. It will also help you figure out the players in your markets specifically.
Understanding your supply market helps you know your buyer power and the kind of position that your sourcing strategy needs to hold. Performing an in-depth market analysis will help you determine the best sourcing strategy that suits your needs.
You can use Kraljic's Matrix method to help you categorize your vendors in an organized way.
It works as a two-by-two matrix mapped against two key dimensions – risks and profitability. The former here demonstrates the likeliness of unexpected events to occur that might seek to disrupt your operations. On the other hand, the latter talks of the possibility of affecting the bottom line of your organization or company.
Tip n°5 : Work on analyzing your segments
Now that you have already accomplished the process of spend mapping, analyzing each segment of your business will seem relatively straightforward.
Based on your spend mapping, you now need to explore the different elements that comprise each component of your business.
For instance, you can start working on the different cost categories that seek to represent the majority of your spending in every segment. You can also find out how many logistics suppliers are presently active in each piece of your business. You can then even assess the market constraints of each of these segments by cross-referencing your market analysis with the structure of your present supplier.
In analyzing the segments, you also need to assess the business impacts in each category. You can do this by analyzing the share of your spending, the criticality of your business, and any positive or negative cost impact to understand.
