The nature of business is changing. No longer do companies compete against companies in the open market, rather competition comes from respective supply chain versus supply chain. To be truly competitive in today’s business world companies must have the most efficient and effective supply chain possible, which means that procurement and supplier relationships are playing an increasingly important role in ensuring that businesses are able to achieve specific strategic goals.
In an age of increased outsourcing, your supply chain gets to the very heart of how a company wins. Today, being the best at producing or selling a product is no longer enough. It’s also not enough to simply buy raw materials cheaply. Success is now determined by the team of companies that you assemble to work together to supply, produce and deliver the best products that address the exacting needs of the customer, at the right price.
This is where strategic sourcing policies for procurement come in to play. By partnering with the right suppliers, you secure a stable, predictable supply of materials based on addressing your needs and balancing factors such as quality of product, availability, responsiveness, and cost; giving yourself a competitive advantage.
A successfully implemented and integrated ERP system with robust supply chain management practices and reinforced by strategic sourcing policies provide advantages in planning, decision-making, execution and improving the overall performance of businesses. With the right ERP software, you can effectively manage predetermined sourcing policies, specifying which suppliers are preferred and control which is selected in the procurement process automatically, depending on the item they supply or product you are manufacturing or distributing.
But why is the adoption of strategic sourcing policies so important? The first reason is the cost. By leveraging whole-company spending you can negotiate better rates and establish longer-term preferential agreements with suppliers. Sourcing policies may also be introduced to reduce the risk associated with demand planning optimization. When materials are bought in volatile markets that are subject to shortages and price instability, it is important to have more than one supplier. For example, companies may want to spread their risk over a few suppliers that are relevant to their business. This allows for competition between suppliers to ensure the best quality items are sourced and available for that product.
Regulations, both internal and external, have a direct impact on the purchasing considerations of business. Many external regulations are dependent on the particular industry while internal regulations are usually based on issues like social responsibility. Either way, these can be difficult to navigate and control however by better managing the processes and policies that deal with the sourcing of suppliers during the purchasing cycle, you can decrease your purchasing risk, improve purchasing governance and ultimately achieve cost reductions.
Through the use of these policies, the guess-work is removed and the system will only allow certain suppliers to be given orders as they have met the requirements based on local government regulations or internal policies.
Supply chain management drives companies to re-evaluate and improve the ways they procure, manufacture, distribute and sell products. By using an appropriate ERP solution you can streamline this process even further, enabling your supply chain to become a strategic advantage to your business and set you apart from your competitors.