Once you understand the costs involved with inventory, you can begin the supply chain management process. But where do you even begin?
The process of sourcing products or services is first in the supply chain. It’s an important stage to perfect in order to reach the final stage to consumer.
Sourcing is part of the procurement process.
To make things easier, let’s break down everything involved with sourcing, from finding products, finding the best people to buy those products from, and the delivery types involved from sourced supplier to customer. If you can smooth out theses processes, your business will be right on track.
Sourcing suppliers is the first step in the supply chain process.
Sourcing is the process of selecting suppliers that provide goods or services.
Choosing the right suppliers can make or break the following steps in the supply chain, and it’s difficult to backtrack once you’re too far in. Sourcing can involve the following:
- Negotiating contracts
- Establishing payment terms
- Market research
- Testing for quality
- Considering outsourcing for goods
- Establishing standards
Therefore, companies expect the goods and services purchased in procurement, from sourcing, to be of high quality, to be at low cost, and especially to be delivered on time. Once again, if this process is chosen meticulously with care, the rest of the supply chain can prosper.
If companies decide they would rather give an outside party the responsibility to choose goods and services, they may outsource. Outsourcing occurs when a company purchases goods and/or services made in-house from an outside supplier. Companies may choose to outsource suppliers for the following reasons:
- If an unexpected increase in demand occurs
- Equipments breaks down
- Lack of plant capacity
- Desire to test the products somewhere else
Another important factor to consider when outsourcing is whether or not a company has time to focus on what makes them great. What I mean by that is, many companies today are outsourcing as a way to focus on their core competencies. Core competencies are what a company does best, so instead of trying to do everything halfheartedly, they outsource and let suppliers do what they do best while the company focuses on their best assets in-house. This theory of outsourcing provides greater flexibility for companies to focus on their core competencies.
[This blog post is an extension of the Smart Inventory Management page. Download it here.]
Selecting a Supplier
Selecting a supplier requires proper research and strategy.
In order to get the best bang for your buck, it pays to spend the time getting to know suppliers to insure their product will deliver the best results.
Be methodical in your choosing and leave no page unturned in your research. Here’s some characteristics to look for when choosing a supplier:
- Years of experience
- Flexibility in changed order times
- Wide range of available products and/or services
- Negotiable prices
- Customer reviews
- Prompt delivery times
- Accommodating customer service
- Financial stability
It’s important to remember that when you’re choosing a vendor, you’re choosing a business partner. This needs to be someone you can trust and someone you can rely on now and in the future. Vendors make a monumental impact on your business, so choose wisely.
Securing a Supplier
If you can feasibly visit a supplier in person, your chances of securing that vendor grow exponentially. Whether that’s a possibility or not, here’s a few more talking points to consider when researching and securing a supplier, either in-person or remotely.
- Define a successful strategy. Get all your bases lined up by researching supplier’s social media accounts, verify credibility, and insure a method for payment. Once you have a strategy in place you can be particular about which suppliers meet your needs and those that don’t. As a result, wasted time and money is saved from suppliers who run the risk of scamming.
- Do your research. Read a supplier’s full website (if they have one) and check customer reviews. Important details can be provided in reviews a supplier may not provide otherwise. Take further investigative action by verifying their registration, business license, and certification. Don’t fall into a pyramid scheme.
- Draw up a well-written contract. Oral agreements or invoices leave room for error and possible ‘he said, she said’ disputes later on. Write up a written contract that includes all parties involved, established product quality, and payment terms. It’s also wise to include a liability clause for contract breaching, attorneys’ fees, and a definition of timely delivery, among other things.
- Discuss payment terms. Before getting to the numbers, start by establishing good communication and take time to understand a supplier’s business. Make sure they know your relationship will be mutually beneficial to both parties, and be honest about what you expect from the relationship. Once these terms have been discussed, choose a method for making payments, like setting up a bank line (if overseas, mostly), paying quarterly, or setting up a line of credit with payments due in typically 30 days.
Delivering Supplier Goods
The importance of a strong supplier-to-business relationship applies to delivery times as well. In particular, delivery types that often require short notice. Continuous replenishment, just in time inventory, and on-demand delivery all require the cooperation of reliable businesses and suppliers. And the best part? They each help reduce inventory levels.
- Continuous Replenishment: vendors make deliveries off a predetermined schedule, often in a short period of time, based on a company’s inventory data or real-time demand. When companies employ continuous replenishment, they encourage reduced inventory levels because they’re ordering in small batches, rather than large batches that are more costly and reduce supplier’s flexibility.
- Just in Time delivery: companies receive supplies on an as-needed basis. In doing so, they reduce inventory levels and costs because just in time delivers only what is needed to increase efficiency and decrease excess waste. And with the help of inventory management, you can better predict inventory demand with forecasting tools.
- On-demand delivery: simply put, suppliers must deliver goods when demanded by the customer. This is another reason why it’s important to choose a supplier who has plenty of products and can be flexible when order times change in an instant. If a company demands it, the supplier must be ready and on time with prompt delivery.
Sourcing suppliers is definitely a step in the supply chain you shouldn’t rush through. It’s kind of like starting a new romantic relationship you really want to work, but you know it’s necessary to take all the precautionary measures and ask plenty of questions before moving forward. In order for all the milestones to follow, in this case procurement, manufacturer, distributor, etc., you’ve gotta take the time to research suppliers thoroughly. One wrong move in the beginning can derail the whole process.