What is supplier procurement?
Sourcing” is an anglicism adopted in common parlance that can be literally translated as “sourcing”, the act of actively looking for different ways to obtain something. In business, the practice of sourcing can extend to areas such as human resources, IT services, suppliers or distributors (after that: “partners”).
Used mainly in the private sector, partner sourcing is an activity that consists of researching, comparing and evaluating several potential partners to select the most appropriate ones.
From the identification of needs to the signature of supply contracts, including negotiations and quality control of products: sourcing is an essential process that allows you to identify the partners offering the best guarantees for your company (quality, price and production time).
Partner sourcing therefore refers to a company’s approach in identifying potential new partners and comparing them to obtain the best ratio between quality, price, production time and revenue, including turnover; its goal is to reduce a company’s purchasing costs.
It involves detailed prospecting objectives to better understand the economic and technical environment and refine the specifications. This step should not be neglected, because to select the best partners, you must first know precisely what you are looking for and where to find it.
Are you looking for manufacturers, wholesalers, distributors?
Identifying the right type of partner is essential, but not sufficient: you also need to find it in the right place.
The sourcing of partners can therefore be national or international. In the case of a foreign search, you have more products, services and manufacturers at your disposal. The only constraints are the quality control of the goods, the communication with the suppliers, and the shipping time. But these limitations are easily overcome by using a company that specializes in global sourcing.
MEDiVICE works with consultants in Europe, Asia and North America. An international presence guarantees a fundamental knowledge of the world markets and, above all, a local anchoring.
What are the stages of partner procurement?
Procurement is often confused with purchasing. In order to distinguish them, it is necessary to understand the purchasing process: purchasing refers to its function, whose mission is to buy the goods, services or benefits needed. The purchasing function includes several complementary activities: specification of needs, consolidation of orders, sourcing of suppliers, negotiations with suppliers, placing orders, organization of incoming inspection.
Supplier and distributor sourcing is thus carried out upstream of the purchase or sale act: it is one of the very first steps in the purchasing process.
Finding appropriate suppliers for a company requires careful monitoring. For this, the latter can turn to its existing panel of partners (provided the need is already known), or turn to new suppliers, if the market is unique – or has evolved. In this case, supplier sourcing is a multi-step process:
Effective supplier sourcing must go through three essential steps:
1) Search for potential suppliers / resellers, gathering information.
To identify potential suppliers who can meet the company’s needs, it is first necessary to identify the geographical area of search and define its preferences in this regard. In other words, from which country does the company want to be supplied or sell? This reflection is essential since the geographical distance from the supplier can vary the transport costs and delivery times as well as the prices that the supplier charges.
Sourcing suppliers requires above all constant monitoring to find the best possible prices, new products, or more advantageous delivery or ordering conditions. The goal of sourcing is essential to save company resources, which can be allocated more wisely.
2) Build relationships.
Once the list of potential partners that can meet the company’s expectations has been established, it is now necessary to contact them and establish a dialogue by sending them a request or a proposal to assess interest. The relationship with a partner is above all a work of negotiation and concessions.
Order frequency, volumes, number of references, credibility, reputation…: everything must be done to convince the supplier/reseller that the company has the ideal characteristics to become a partner of choice and to establish a relationship of trust, sustainable over time. The challenge is to benefit from the advantages offered by a partner while ensuring that he would have everything to gain by associating with the company.
3) Estimate the consequences for the company’s organization; anticipate the consequences for the company.
When a sufficiently attractive offer has been received by the company, estimate the impact of signing a contract with a partner on its performance and cost structure. The main objective of partner sourcing is to reduce procurement costs; the entry of a new partner with lower prices will have an impact on the company’s accounting.
The consequences can also be logistical and organizational: a geographically more distant supplier implies longer delivery times that must be anticipated. The payment terms required by new suppliers may be different, longer or shorter, which may have a temporary impact on the company’s cash flow.
To be aware, sourcing suppliers is a crucial step that requires time and excellent knowledge of the market, especially in the case of new needs. To put all the chances on your side and identify the best partners to accompany you, entrust your sourcing to a company specialized in sourcing, such as MEDiVICE. You are sure to get a complete overview of the offers corresponding to your needs, and at the same time to reduce your purchasing costs.
What is the value of supplier sourcing to a company?
Like many facets of business management, effective supplier sourcing must be accompanied by a coherent strategy: what results are expected from this approach, what is it trying to achieve by contracting with one or more new suppliers?
Supplier sourcing fulfills several important missions for the company:
• Increase the margins achieved: obtaining more advantageous prices remains the main interest of sourcing. If the selling price remains the same, a decrease of the supply costs allows the company to increase the commercial margin on the sale of a product and thus to increase the realized profits.
• Increase the number of suppliers: having several suppliers is an excellent way to reduce the supply risks. A certain amount of competition between the different partners of a company also guarantees attractive prices and delivery times.
• Strengthen or weaken your attachment to a supplier. Depending on the industry in which the company operates, too much dependence on a supplier can become problematic if the company ever goes out of business, for example. Conversely, if the volume of orders is too low, a supplier may well decide to abandon its relationship with a company due to lack of interest.
• Build relationships: whatever your type of business, multiplying the number of your contacts is crucial. In case of unforeseen events, it is always useful to have alternative solutions to avoid falling behind in your production deadlines.
What are the challenges of supplier procurement?
Supplier procurement presents several key challenges for the company, including:
• Increasing margins
Sourcing allows you to select suppliers at the most advantageous prices. For you, it is possible to reduce procurement costs while maintaining your selling price. If the selling price remains the same, a decrease of the supply costs allows the company to increase the commercial margin on the sale of a product and thus to increase the realized profits.
• Avoid dependence on one supplier
Having several potential partners in competition makes it easier to negotiate attractive prices and delivery times. Having several partners also allows you to reduce the risks associated with supply disruption.
• Strengthen the relationship with a supplier
If the order volume is too low, your supplier may decide to break the contract due to lack of interest. For this reason, maintaining a relationship of trust with him is essential to be accompanied by trusted and long-term partners. Conversely, dependence on a supplier is problematic, as your business may be impacted if the supplier suddenly decides to cease operations. Forging new relationships is key to overcoming this problem.
• It is essential to increase the number of contact points
to bring in other partners if necessary. To avoid disrupting the operation of your business and avoid delays in your production deadlines, you are sure to have alternative solutions in case of unforeseen events.
In conclusion: As a fundamental tool of strategic intelligence, partner sourcing responds to many challenges, including the creation of added value for your company. By effectively answering the question “who are we going to work with today and tomorrow?”, sourcing not only allows you to find the best partners, but also to make them long-term partners in your company’s success, making you more efficient in your market.
Sourcing, outsourcing your Business Intelligence or Business Development: discover our solutions and reduce your costs! You want to entrust your sourcing activity to a trusted partner?