6 Steps to a Successful Strategic Sourcing Program 8/25/2010

Here is some help for those who are looking at expanding their sourcing into low cost regions.  While not a comprehensive guide by any means, this post is simply to help ease the process.

Step 1.

Start Slowly!  Try to limit the number of part numbers or SKU’s that you are focusing on in the beginning.  Don’t try to source every product or component you purchase at once.  This is a strategic decision for your company, not something that should be attempted overnight.

Step 2.

Do Your Due Diligence!  Visit the suppliers or have a 3rd party company assess their factories – if you don’t have a robust assessment process, seek help from someone who is an expert.  Check references – ask the potential suppliers to provide references for other customers in your local region.  In addition, conduct extensive testing – we have all heard about companies that have imported goods from overseas that are tainted with chemicals, do not perform as promised, and have caused significant product recalls.  You don’t want your company to be on the front page of every newspaper.

Step 3.

Provide Realistic Forecasting.  Don’t promise large order quantities to suppliers in an attempt to drive down pricing.  Negotiate realistic pricing based on realistic volumes and you will benefit from the mutually beneficial relationship and avoid costly delays and missed cost expectations.  The same thing goes for delivery expectations.  If your lead times are exceptionally tight – make sure to buffer inventory levels or schedule deliveries accordingly.  International Air Freight costs will quickly absorb any cost savings you gained by going overseas in the first place.

Step 4.

Always 2nd Source.  Establishing a second source from day one can help make sure you are keeping your suppliers honest, but more importantly helps your organization limit risks of a supplier keeping you line down.

Step 5.

Partner With Your Suppliers. Find suppliers that share your company’s vision and that can support you long term.  Building a sustainable relationship based on honest pricing, delivery and quality expectations will benefit your company for years to come.

Step 6.

Always Remain Focused on Continuous Improvement. Be sure to work with your supplier partners to continuously enhance process steps and quality procedures.  Partner with them on new product development projects and let them know how much you value your relationship with them.  Building these types of relationships will give you the upper hand on the competition and help you create the most value for your shareholders.