What is Strategic Sourcing and Why Is It Important?

There are few industries more dependent on a reliable supply of components than electronics manufacturing. Every supply chain has its own model for the procurement of components, but just because a business has always operated a certain way, this is not enough of a reason to continue to do so. This is especially true when finances can be used more effectively. Here’s how strategic sourcing could help.

What is strategic sourcing?

Strategic sourcing is a holistic approach to developing channels of supply that considers all activities within the procurement cycle to secure the best possible total cost, rather than just the lowest purchase price for those goods.

Strategic sourcing allows businesses to consolidate their purchasing power to achieve the lowest possible total cost of ownership and minimise risk to the supply chain. The approach is a long-term process that is dependent on a continuous re-evaluation of the business’s sourcing activities, analysis of the market and aligning business goals and requirements with those of the suppliers.

The 7-step process of strategic sourcing

  1. Profile the product category in as much detail as possible, including the spending patterns and departments involved.
  2. Analyse the market, identifying potential new suppliers, both local and global.
  3. Develop a sourcing strategy based on the goals of the business, deciding where to buy whilst minimising risk and cost.
  4. Select the sourcing process by defining your request for proposal criteria for soliciting bids.
  5. Negotiate with and select suppliers after reducing to only the valid bids.
  6. Work with the new suppliers to integrate them into the existing processes, using the communication plan to integrate improvements to specifications or processes.
  7. Benchmark the current state of the category by tracking performance metrics and the effectiveness of the sourcing plan. This leads back to step one as the marketplace evolves.

Why is strategic sourcing important?

Adopting strategic sourcing can bring significant benefits to businesses in the electronics manufacturing industry, the most noticeable being cost savings. Sourcing suppliers with this method and continuing to analyse the evolving market means that businesses can ensure they are always achieving high cost savings.

This method also allows companies to align their component sourcing with their business goals, which increases efficiency and minimises risk within the supply chain. The process of analysing suppliers on more than just their initial product cost also means that these business goals can be matched with the best possible suppliers in order to achieve them, creating high value at low cost.

At the heart of strategic sourcing is the opportunity to build long-term relationships with suppliers. Because suppliers are selected based on their capability and their compatibility with the business’s needs and goals, an efficient transaction model between supplier and OEM is established. This dependability leads to more benefits than just getting the right components at the time they are expected; it also motivates the OEM to consider the supplier for other sourcing decisions, and the supplier to continue the pattern of reliability so they can ensure future business.

These strong relationships make it easier to identify risk, forecast sales, and cope in times of component shortages.

How Rebound Electronics can help with strategic sourcing

It is important to use an independent supplier to help with strategic sourcing, as they have the most flexibility when it comes to sourcing components and the ability to make decisions on sourcing, financing and stocking without being answerable to shareholders.

Here at Rebound, we are experts in helping businesses employ strategic sourcing for their procurement processes. We can source components globally, meaning that in times of shortages, production lines can keep moving and supply chains can continue to realise product sales. We can also work with businesses to buy excess components so that cash flow and warehouse space are freed up.

The scale of our business, our understanding of the market, and our flexible approach also mean we are well placed to get the best possible price on the electronic components we source. You can find out more about our services here.

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In this blog, we take a look at what you need to focus on when you are dealing with supply chain disruption and how you can work on your long-term recovery.

What is Strategic Sourcing and Why Is It Important?

There are few industries more dependent on a reliable supply of components than electronics manufacturing. Here’s how strategic sourcing could help.

The MLCC Shortage: Will it Continue in 2020?

Because of the popularity of MLCCs, there has been an industry-wide shortage for the past two years. Currently, lead times are up to 50 weeks on new orders, some suppliers aren’t accepting new orders for MLCCs and others are cancelling existing orders.

In response to the shortage, some component manufacturers have imposed allocations on the amount of MLCCs that can be ordered by OEMs, and many have increased the price of their MLCCs, even applying this increase to orders that have already been placed. Due to this, many OEMs are struggling to complete their own productions and are reaching line-stops.