One of the most important activities of the purchasing process is the sourcing.
What is sourcing?
What are the alternatives?
How to select suppliers professionally?
My name is Americo Cunha, in this lesson, we will be studying the sourcing process and
its alternatives.
Welcome, let's start learning.
Sourcing is the process of identifying, selecting, and developing suppliers.
In this video, you have to answer four questions.
What are the materials required?
How can the company obtain these materials?
In the case of purchasing, who and where are the suppliers?
The what question lead us to the requirements.
The how, if the company will be producing or purchasing the material.
Alternatives for location, type, size, quantity are the answers to the questions who and where.
The purchasing professional should evaluate alternatives and determine which one meets
the company requirements and strategy.
One of the first decision to be made is if the company will produce internally or buy
the resource required.
If decides for producing internally, the production area should take care of the
request.
In the case of purchasing, the company has some basic alternatives.
The basic sourcing alternatives are: (1) Single vs. multiple suppliers
(2) Local, regional, global suppliers (3) Retailers, distributors, manufacturers
(4) Large and small suppliers We will be working on them with more details
next.
Supplier location is important and very frequent analysis.
The company can choose suppliers between who are closer to its facilities or in other
locations.
Each alternative has pros and cons depending on the situation, item to be bought,
company’s strategy.
As we can see, it is clear that companies usually have fewer suppliers near the facility.
It can lead to some limitations.
If the company expands the sourcing radius, there will be more suppliers to be evaluated
The benefits of local suppliers are that usually, the lead time is shorter, the supply risk
is lower, and better supplier-buyer relationship,
although the company can face some capacity and variety limitations,
also, the unit cost tends to be higher than offshore suppliers
Global suppliers may give more capacity and lower unit cost
But it comes with longer lead time, risk, and transportation costs.
How to choose among manufacturers, distributors, and retailers?
Some professionals, also call this the comparison between indirect and direct suppliers
The supply chain network here shows the 3 options.
The company can decide to buy direct in bulk from the manufacturer,
Or some amount from a distributor, or even units from a retailer.
From the manufacturer, the company can get better prices
but has to buy large quantities with undesirable consequences on transportation and inventory
holding costs.
From distributors, the company can get the item for a reasonable price in smaller and
cross-vendor lots.
In this case, the company can save in transportation and inventory costs.
The retailer is a good alternative, for spot purchasing,
Through a quick item replenishment but usually through a higher price.
Another option is to purchase from a single or multiple sources.
Multiple suppliers can reduce the unit cost, supply risk,
And have access larger capacity.
Single source has the benefit of having the supply process under better control
regarding quality and intellectual property protection
These are the two last sourcing alternatives we are evaluating in this lesson.
A larger supplier can provide more capacity, variety, and locations,
but the buyer usually should agree to standard products
and contract terms.
In the other hand, smaller suppliers tend to be more flexible and
is a good option when the company needs to customize materials, services, and supply
conditions.
Remember, the purchasing professional should start with 4 basic sourcing questions.
What?
How?
Where from?
And Who?
The evaluation factors discussed in this lesson
may change, depending on the individual characteristics of the company,
its strategy, and purchasing situation
Thanks for watching, see you in the next lesson