Supply Chain Operations
Producing any type of good or service first requires raw materials and equipment. Supply chian operations is the process businesses undergo to acquire all the materials they need to run their business. However, supply chain operations are more than simply buying raw materials. This process involves:
- Figuring out what you need, when you need it, how much you currently need or will need in the future
- How long your current stock will last, when you should begin to make a new batch
- How long it will take the needed materials to get to you, how long in advance you should place an order
- Who offers the highest quality of what you need, what is the cheapest possible price and if there any suitable alternatives
It’s not how low you fall, but how quickly and often you optimize that counts.
Phase 1: Procurement
The first phase of supply chain operations, which is Procurement, is the actual buying of raw materials from suppliers. Here, we discuss techniques to help you identify and negotiate the best deals with suppliers and also how to manage your suppliers to ensure they always provide you with the best service. With practices such as demand forecasting and vendor management systems, you can optimize the procurement process.
Procurement in business conclusively involves making buying decisions on the instances of scarcity to ensure the purchaser receives goods, services or work at the most reasonably fair offer when factors such as quality, quantity, time and location are compared.
So, how can the procurement process be improved? One technique to improve procurement is optimizing the vendor selection process.
Optimizing The Vendor Selection Process
Here, we’ll talk about how to choose the best vendor for your raw materials. Finding the ideal supplier goes beyond just looking for who has the cheapest prices.
There are many things to consider, such as the quality of goods, the ability of the vendor to deliver on time and meet your demands, and more. The exact requirements are tailored to your specific business needs. Selecting a vendor often has a domino effect; if you choose one who disappoints and fails to deliver; it means you may also end up disappointing and failing to deliver to your customers.
So how can you get the best suppliers for your business, and ensure you partner with the right people? This is where strategic sourcing comes into play. Strategic sourcing is a procurement process that utilizes data collection, market research, negotiation, spend analysis, and contracting to secure company procurement goals.
Strategic sourcing is useful and widely implemented for a variety of reasons. Some of which are:
- Increased savings: strategic sourcing helps to identify and select vendors that offer the most value at the lowest price, which leads to significant cost reduction.
- Increased quality: for the same reason as the previous point, strategic sourcing finds the best vendors that offer the highest quality materials.
- Alignment of sourcing and business goals: strategic sourcing takes into account the objectives of the business before it selects a supplier. By finding a sourcing strategy which aligns with the business goals, it ensures better performance and minimizes supply chain risks.
- Optimization of vendors: strategic sourcing not only finds you the ideal vendor, it also optimizes their operations with you. It analyses the suppliers’ profiles and capabilities and this gives it insight into the strengths of the vendors and enables it to optimize the transactional relationship between buyer and supplier.
- Establishes a long term relationship with suppliers: This is simply because strategic sourcing does such a good job at selecting suppliers that the business relationship often lasts for a very long time. By linking businesses to suppliers whose core capabilities match their business objectives, it creates a lasting match. It helps to create a synergy between businesses and vendors.
The benefits seem worth it, now we’ll discuss how you can find the ideal supplier. Here are a few steps to follow:
Basically, collect all the data and find all the information you can about your business first and then about the vendors available. If you understand fully the workings and needs of your organization, then you can easily determine what it is exactly that you need to find in the ideal supplier. You can start by categorizing your supply chain into sub-categories, and each of these categories should have a manager assigned to it.
2. Identify suppliers
Conduct market research. How many suppliers are in the market? How many of them are capable of meeting your needs? These are the questions you need answers to. Find the suppliers who meet your requirements and make a shortlist of suppliers you’d be open to working with.
3. Analyze your current sourcing process
Are your current suppliers up to par? Or are they lacking? Analyzing your current sourcing process can help you determine what parts need improvement and help you to avoid making the same mistakes and instead help you figure out what to do differently to make the process more efficient.
4. Choose a supplier
Approach the vendors on your shortlist and contact them, send a request for quote (RFQ) or a request for proposal (RFP) and if appropriate, a product sample. These things will enable you to compare prices and products to select the best suited vendor.
7. Build long lasting relationships
Your suppliers are like your partners, and so, you should treat them as such. Build a positive relationship with them, this can create many win-win situations and can help reduce costs, quality goals, etc.
8. Evaluate and Improve
Constantly improve your skills and knowledge about your vendors and sourcing techniques so you’re never behind on a trend. Keeping on edge on the newest techniques and processes can save you a lot in the future.
9. Embrace the possibilities
Finding and committing to a new supplier is in many ways an adventure, you know what you want to get, but a lot of unexpected things could still happen. With strategic sourcing the possibilities are vast, although it requires constant learning and relearning, if done correctly and mastered, it is a truly invaluable skill.
Before you commit to a vendor, take a look at the next point and learn how to negotiate the best deals and get the best value for your money.
Supply chain operations is a vital part of every business, no matter what industry you’re in. A business simply can’t run if this process isn’t set up, and something so important should receive the attention and consideration it deserves.
Optimizing vendor selection is just one way that you can improve the procurement stage of your supply chain operations. In doing so, you can set yourself and your business up for success.
Want more information on supply chain operations, and all things business? Don’t forget to visit the Profit.co blog, where our business experts break down the important topics that you need to master in order to get the best business outcomes.
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