An Overview of the Sourcing & Procurement Strategy Adopted By Modern Organizations

Sourcing and procurement is an inevitable part of the global supply chain system. Sourcing is the process of finding or identifying a source from where an individual business will import its goods and services. It forms a part of the procurement process which pertains to the acquiring of goods and services in a less expensive manner. Sourcing involves analyzing and hiring independent businesses to supply products and services to other businesses. The procurement system refers to the process of obtaining those goods and services for a particular business. As businesses are becoming more and more focusing on their niche areas, it becomes imperative for organizations to take help of this Sourcing & Procurement strategy to enjoy a competitive advantage in the market.

It is a business strategy that if an individual business cannot do certain tasks efficiently then there is no harm taking help from an overseas manufacturer who can do the same task in a cost-effective way.

Various business firms always look out for options on how to maximize their production by reducing the overhead cost of business. They are in search of options which can add value to their products and services. If they find a company or manufacturer which can add value to their products they will outsource those companies to reap business profits.

Almost all the organizations do outsourcing at some stages of their business. Some companies even resort to product outsourcing their entire line of products and services to a third party provider.

The genesis

The trend of Sourcing & Procurement became prevalent in the decades of ’90s when organizations started outsourcing their lots of services from overseas suppliers. China emerged as the leading supplier of Sourcing & Procurement for companies across the world.

The primary goal of outsourcing was to minimize the growing production cost and to concentrate on the niche areas and to deliver the best. This trend received wide popularity and as the production cost is lower in China and it helped various businesses to put their feet in their respective markets. Business from all segments including the clothing, drug slowly adopted this trend to experience a huge success.

Strategic sourcing

Sourcing & Procurement plays a crucial role in streamlining the cost structure and competitiveness of small and large scale businesses. It involves evaluating the high-end purchases and developing long term ties with the suppliers which are capable of providing top class products and services at a much lower cost.

The need of Sourcing & Procurement

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Organizations are variously challenged at different stages of their business. They deal with the rising level of competition, volatile market place, changing business models, the pressure to reduce the cost, fluctuating price and the low level of supply of raw materials. As a response to these problems, organizations often look for outsourcing options to decrease their overall production cost by exploring a new partnership in business, innovating new products and services. They opt for a total overhauling of their organizational structure to be able to respond in a better manner to the modern day market demands. Procurement plays a key role in all these activities and it is a standard business method, a recognized practice.

What statistics say about the recent trend of Sourcing & Procurement in the USA?

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According to the findings of the renowned global procurement officer survey 2018, the cost is still dominated to be the top priority of the procurement leaders.

  • It is estimated that 78 percent of focus is rested on the reduction of cost. Further, it reveals that as growth is evident when it comes to saving performance.
  • From 2017 to 2018, the saving from procurement has grown from 58 percent to 61 percent in the year 2018.
  • This study also claimed that around 33 percent of procurement leaders believe that the coming of the digital procurement strategy will help them to better achieve their long term objectives and organizational values.
  • This study also reveals that organizations highly focus on technical procurement skills rather than any other areas. As much as 36 percent of procurement leaders consider their procurement function is very effective and think that it is highly needed for their internal business operations. They feel that procurement provides a true value to their business.
  • Around 45 percent of procurement leaders feel that their team if efficient to deliver on their procurement strategy which is a great advancement from the year 2017 when it was just 27 percent.

This is a reliable survey as it has created a benchmark in the field of procurement by taking into consideration of different challenges faced by procurement such as the changing dynamics of market, value and collaboration, leadership and talents and digital procurement method.

Digital procurement process or cloud computing

Cloud computing or digital procurement emerges as the most popular way of doing business. It is a well-established business practice in the United States. It refers to the process of receiving the in house IT services over the internet from a distant location rather than managing then independently with the in house team. It enable businesses to manage their operations from any time any location in the world.

In the field of procurement, there is a growing trend of adopting cloud computing services among both the public and private sectors.

  • If reports are to be believed, the spending on public cloud offerings is expected to see a growth of US$67 billion in 2015 to US$162 billion in 2020.
  • The Federal government’s spending is also expected to surpass US$10 billion by the year 2023.

The social and economic impact of sourcing and procurement in America

This trend of offshore Sourcing & Procurement is growing high in the United States and it influenced all the manufacturing and other industrial segments. It gives rise to a serious debate about the impact it has created on the society and the economy as a whole. Many individuals believe it has taken away jobs from the domestic market and causes a decline in the standard of living. While a section of proponents welcome this trend saying that it has offered great benefit to society by increasing the overall revenue of the businesses.

China as the leader in sourcing and procurement for businesses 

A huge number of businesses in America rely on China as their sourcing and procurement base and try to become a leader in the market place. China is viewed as the low-cost manufacturing hub as the production cost is quite low there. Automobiles, electronics and all other sectors of businesses are heavily relying on China Manufacturers to procure their materials.

Future of Sourcing & Procurement

The future of the Sourcing & Procurement industry is prosperous both from the point of view of a profession and as a business process. In the future, the whole supply chain industry will undergo many changes and digital technology will completely dominate the procurement process.

Many years ago, sourcing and global procurement was a foreign concept. But there are a lot of changes have come in the way that businesses are conducted nowadays. To deliver a sustainable business and reducing the cost in operations, global organizations are fast adopting this method for success.

Due to technological advancement, better accessibility to remote marketplaces is possible now and this is further contributed to the fact that those sourcing companies are no longer in dark. All the strategies are adopted to prevent any risk associated with the practice of sourcing and procurement.

Final insight

Sourcing & Procurement practices have always proved to be profitable for any business that faces tough competition. Nowadays it emerges as the top business practice among organizations. Companies who have successfully developed a strong relationship with the Chinese manufacturers adopt practices which cut down the operating cost of their business and improve the lead time. Businesses that have good knowledge about sourcing and procurement will find it easy to implement this practice and enjoy the bullion comes to their way.

 

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