Strategic Sourcing for Production
The objective of strategic sourcing for production is to obtain products and services from suppliers in a manner that will ensure the lowest total cost of ownership across the entire supply chain. By focusing on all costs incurred throughout the life cycle of a product or service, including procurement, shipping, storage, and other related activities, companies can take full advantage of the suppliers they partner with and optimize their production efforts.
The first step in any effective strategic sourcing approach is to define the business’s desired outcomes. This should consider both the long-term and short-term objectives that the company wishes to achieve. Once these objectives are determined, the sourcing team, which is typically made up of members from across the organization, should be formed. This team should review the market and identify potential suppliers who offer the necessary items and services. Once potential suppliers are identified, the team should conduct a thorough analysis of their capabilities and cost structures.
The next step is for the team to review the organization’s current production processes. This review should consider the equipment, materials, and processes used in the production process. Any areas that could be improved should be identified and discussed with potential suppliers. This will ensure that the final sourcing decisions will be based on the most cost-effective and efficient production processes.
The team should then create a Request for Proposal (RFP) for the desired items and services. This RFP should contain a detailed description of the scope of work, required quality standards, quantity, payment criteria, and delivery dates. The RFP should also include the optimal purchase agreement, which would include a price or bidding structure, payment terms, and any other conditions.
Once the RFP has been completed, it should be sent to all potential suppliers, and they should be asked to submit their proposals. The team should then review the proposals and select one or more suppliers that meet the required objectives. The team should then negotiate with the suppliers to ensure that the terms of the agreement are in line with the organization’s goals.
Once the agreement has been finalized and signed, the team should begin the process of measuring and monitoring the performance of the suppliers. This should include conducting periodic supplier audits and developing performance standards to evaluate the level of service and product quality. This process should also include monitoring the cost savings achieved by using the supplier.
Strategic sourcing for production can be a long and involved process. However, it is essential for companies to take the time and resources necessary to ensure that they are obtaining the highest quality products and services at the best possible price. By understanding the objectives of the organization and taking a comprehensive approach to the evaluation of potential suppliers and their pricing structures, the company will be able to maximize their production efforts and optimize their bottom line.
