Global sourcing involves all factors related to helping make a product happen on time, meeting quality standards, and satisfying budget expectations. There are many resources required in order to build a product such as engineering design capability, tier 2 sourcing, project management, material management, and quality control. The challenge is determining how to coordinate these on a global spectrum. Beyond that, a sourcing team is focused on finding the best goods at the least expensive prices. In other words, they look for value. They help manage and alleviate supply chain risk through risk-management and keeping tabs on supplier stability.
Sourcing goes much deeper than just a simple purchasing decision. A good strategic sourcing strategy generally has a few basic components such as category planning, sourcing projects, and supplier performance measurement. The team looks to align these activities with the goals of the company and leverage expenditures with quality suppliers to maximize value.
Finding the best supplier is an essential first step to managing product quality and limiting the possibility of error in your orders. How do you find the best? While not exclusive, here are 9 things a good sourcing team considers when choosing a supplier.
Cost will always be a driving factor. It should match the product offering as well as allow you to be in line with competitor pricing. Having a strong sourcing team from the beginning when key design and engineering decisions are being made and cost saving opportunities are more plentiful is essential. This allows the team to look for more options or adjustments that can better meet the needs of the product and satisfy the budget. However, price alone of a component or service isn’t the only thing to consider. It’s the total cost of ownership that matters, which can include other factors such as labor, shipping, and even cost of waste or downtime.
You don’t want to pay just to have a product created. You want to have it created to your quality standards. Therefore it is of high importance that a supplier’s reputation for quality is considered. They should be able to demonstrate proven quality performance from past work and a level of consistency in product output. If a third of the product in an order comes out with a surface blemish, this may be a sign that quality assurance isn’t up to par in at least one stage of the process. Unexpected quality issues can happen anywhere of course, but it’s important to consider how a supplier handles it if they do occur.
It seems obvious to make sure a supplier actually has the capability to manufacture the product or component you are looking for. But good sourcing managers take it a step further and look for signs that a supplier is able to consistently produce that product and meet your standards. How? One way is to look at a factory’s quality management system based on a standard such as ISO 9001. An audit of this system can reveal raw material and finished product availability, machine maintenance, R&D capabilities, quality control procedures, certifications or licenses, and more. Another way is to review product samples in order to visibly see results before mass production begins. Many factories will say they have the production capabilities to make the product in need, but it’s the sourcing manager’s job to confirm that.
Reliability and Reputation
If a factory has a reputation for running a good, honest, transparent business, that’s a good one to look into. This is, in a way, an all-encompassing consideration. Trust and confidence that the factory will handle the project well is huge. When goals are aligned among all parties, there is a synergy and efficiency that is created. This is why it helps to look for reliable, longer term relationships and build a network of high performing partners.
There is typically a lot of back and forth for a manufacturing project, therefore it is key that communication is good between the customer and the supplier. A sourcing manager should determine if there are clear ways to overcome any language barriers as well as make sure the supplier is clear and responsive to communications in general. Are they open and direct? Or does one have to keep poking to get information? Knowing from the onset that a supplier is readily available and transparent about everything that is happening in regards to a project lays a great foundation.
Supply Chain Capabilities
Let’s not forget about logistics, shipping, and distribution. Since these are part of the total cost of ownership, it’s important to consider if a supplier has the capability to get product where it needs to go, or if a third party logistics company will need to be hired. This isn’t always a make or break deal, but it’s important to factor into a sourcing decision for the sheer fact that it will make a supply chain less streamlined if the capability isn’t there.
Resilience and Risk Management
Things can and often do go wrong one way or another in manufacturing, whether it’s a small disruption or on a broader scale (perhaps an economic or political shift). Is the supplier agile and responsive to these instances? Or do they falter when things go wrong? Do they anticipate problems before they lose control? Good sourcing managers want to make sure they work with suppliers that have confidence in their capabilities and contingency plans in place for security.
Leveraging Economies of Scale
Beyond looking for the specific component or capability at hand, there are opportunities for sourcing teams to instigate much more. A good one will consider how they can streamline suppliers by consolidating where possible in order to drive down costs with larger, widespread orders. Can the supplier also run a line for another piece the customer is already producing elsewhere? Can “package deal” discounts be given and would the ease of managing suppliers improve with a switch? Seeking opportunities to reduce costs and improve value when it makes sense can be huge. It’s this type of thinking that creates positive leaps for a company’s overall growth.
It is very easy for a sourcing team to focus on one issue at a time, such as pricing, quality, etc. However, a successful operation of product sourcing requires a total solution for anything that may be encountered during the outsourcing process. Depending on the project, a total solution is really the combined problem solving capabilities and resources of a new partner in engineering, manufacturing processes, tier 2 management, finance, design, quality management, logistics, capacity, risk management, cost, alternative solutions, and flexibility on meeting the demand change of a project. Thus, a total solution is a must to ensure the final on time delivery of a product.