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Why strategic sourcing is the way forward

A reliable source of components is essential in the electronic components industry, but with global shortages on some of the most in-demand components, as well as the many challenges brought about by the COVID-19 pandemic, businesses need a solid sourcing strategy

Now more than ever, the best sourcing strategy is one that reviews and responds to the ever-changing marketplace, rather than just enduring it. Strategic sourcing is therefore something worth considering.

Strategic sourcing is a method of procurement that focuses on a continual re-evaluation and improvement of the company’s purchasing activities to minimise risk to the supply chain. This approach considers all activities within the procurement cycle and looks past the lowest purchase price for individual goods, instead focusing on securing the best possible total cost.

The steps of strategic sourcing are as followed:

● Profile the product category and the commodities involved in extensive detail.

● Analyse the market, including potential suppliers’ prices, labour costs, risks and opportunities.

● Develop a sourcing strategy based on business goals that minimises cost and risk.

● Select the sourcing process using a Request for Proposal (RFP).

● Reduce the list to only valid bids, then negotiate with and select suppliers.

● Work with the successful suppliers to integrate them into your processes, whilst making any necessary changes or improvements together.

● Track the results of the new sourcing plan using performance metrics, identify improvements that need to be made, ready to return to the first step as the marketplace evolves.

Why is strategic sourcing so effective?

Despite looking past individual low prices for products, one of the most significant advantages of strategic sourcing is the cost saving. This is because a continual analysis of and response to the market means that the best possible total cost is always achieved.

Very few businesses will have found that their traditional sourcing plan has continued to function as effectively during the pandemic. Some businesses have had to make significant changes to both their sourcing channels and business plans just to survive, but strategic sourcing allows you to make your decisions based on the market, and adapt continually, rather than overhaul your processes when there is a dramatic shift.

In the strategic sourcing model, suppliers are selected based on their compatibility with your business, taking into consideration more factors than just the low cost of certain components, such as dependability, delivery schedule and availability. If a supplier proves to be dependable, they may become a trusted strategic partner, who will be just as invested in your success as you are, hoping to continue a mutually profitable relationship.

Selecting your suppliers on more criteria than product cost allows you to align your component sourcing with your business’s specific goals. Delivery quantity, frequency, and labour costs are all criteria that may have a more direct effect on your goals, rather than just a low component price, whilst still delivering the parts you need.

In the strategic sourcing model, the vetting process that you put potential suppliers through goes beyond a compliance check, which means you can identify any red flags before you get into business with a particular supplier. Mode of transportation, country of origin, nature of the sourced items, level of sustainability and flexibility are all factors that could impact risk and this type of supplier selection lays that information bare.

Strategic sourcing is undoubtedly the way forward for electronics manufacturers, and this type of informative, flexible approach is more important than ever, now that we have seen how easily the marketplace can be disrupted. The benefits are numerous if manufacturers can look past initial product cost and consider the broader credentials of potential suppliers.

Author details: Jeff Brind is the Chief Information Officer at Rebound Electronics

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Jeff Brind

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