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Home : Articles : eSourcing : Strategic Sourcing Process

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STRATEGIC SOURCING PROCESS

In the last few years, the one thing most businesses were not worried about was having a scarcity of suppliers. For the past few years, the reverse was actually true. The supply of vendors was greater than the demand for their services and, as a result, buyers found the perfect time to begin using high-tech tools to assist in their purchasing decisions. One of the most popular of these tools was the E-Auction, which allowed suppliers to view an RFP via the Internet and place bids on fulfilling the project. The buyer then compares the bids and chooses the supplier he or she feels is the best fit for the company's needs. Now, however, manufacturing is again in an upswing and companies are beginning to fear that suppliers are going to soon be in short supply, which could leave many businesses without the goods they need to keep producing their products.

These businesses may have good reasons to feel nervous. First, suppliers in demand will have the advantage. They'll be able to pick and choose the companies they want to do business with and that means they'll pick the jobs, which are most profitable for them. In some cases, the may elect to rule out e-auctions. Also, the emphasis in recent years of buyers on price over quality has sent many lucrative supplier contracts overseas and has driven many local vendors out of business. These factors have definitely caused some resentment among sellers. However, these factors don't have to ruin a businesses chance at securing a supplier's services. A few changes in strategy and attitude can negate these potential problems and prevent companies from having to worry about vendor scarcity.

One of those changes is that both suppliers and buyers need to accept responsibility for the problems at hand. While buyers have paid too much attention to the price instead of figuring in harder to quantify factors like quality and added services, suppliers have been so desperate to land a contract that they slashed their bids in order to get in the door. Then, once the supplier secured the contract, the supplier may have realized that they've either just broke even or lost money on the arrangement. Both parties need to accept this fact before they can prepare to handle their future and move forward.

Once suppliers have accepted their share of responsibility for the situation, suppliers need to be more creative to stay competitive in a market that is often driven by price. While a U. S. vendor may never be able to equal an overseas seller in price, they can offer extras that they know will appeal to customers. Added-value services do give suppliers an advantage. Also, suppliers need to be willing to look at alternatives in order to get the job done at a competitive price. For example, if one type of metal is normally used to create the goods, then suppliers can find a different, cheaper metal to substitute that will still meet the buyer's quality standards. All of these steps can help suppliers keep a foothold in the industry. None of them, however, can replace the importance of being cognizant of profit margins and project expenses when placing bids and signing contracts. Without this knowledge, the supplier is guaranteed to end up in a bad deal and may not stay in business for long.

Buyers also need to change some of their approaches to purchasing as well. Instead of focusing solely on price, they do need to begin figuring in those other factors into their final decision. Using price alone and choosing primarily overseas suppliers has resulted in astronomical defect rates on the goods that companies receive from offshore vendors. Buyers need to realize that often, they will get what they pay for, and they should be willing to pay a little more for quality and for the added services that many suppliers are happy to provide. This type of orientation will generally help the company in the long run.

Even though many suppliers and businesses point the finger at e-auctions as the problem, the reality is that the technology has been an asset to both sides. E-auctions open up the procurement process to more potential suppliers and allow them to compete on more equal footing than traditional methods typically have. The real problem has been the attitudes of the buyers and sellers who have been using E-Auctions. It is this attitude and orientation that needs to change in order to forge long-term supplier relationships.

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