Understanding of Strategic Sourcing - Assignment Example

Strategic Sourcing Introduction Strategic sourcing is a strategy to supply chain management that makes formal the processdata is acquired and applied with a main objective that, a company can manage its combined buying power to establish significant potential prices in the market industry (Ravi, & Singh, 136). This paper seeks to establish three key themes from selected articles on sourcing. Theme I (In Sourcing) Many companies have opted to in-sourcing since outsourcing has failed to generate the financial benefits these companies expect. This is mainly because outsourcing is associated with a number of challenges, which are both structural and operational. For instance, fluctuation of prices and global crisis are factors that create a lot of problems to running of companies via sourcing. Owing to this fact, employee and customer satisfaction are as well evident. From the article Boeing Faster, faster, faster in The Economist magazine, it is evident that most supplying companies show tendencies of consistently failing their customers. This result to demand for production services overwhelming many sourcing companies hence customers cancellation of business deals. This theme of in-sourcing is also evident in the article below: As much as outsourcing helps in saving on costs, it is associated with a lot of challenges which attributes the sourcing companies being unreliable. According to Wagner, & Boutellier (2002), small firms in the US lose the chance for supplier savings beyond $134 billion as a result of insufficient sourcing capabilities. It is thus evident that strategic sourcing is based on two factors which include operational and structural risks. On the operational risks, there are beneficial factors like price upgrading, cycle time reduction, upgraded inventory returns, transaction decrease, elevated services heights, inventory decrease and upgraded quality programs. On the structural risks, there are factors that include advanced profits, viable positioning, advanced reactions period to market state, employment of seller capability, outsourcing probability and authentic partnering with sellers. In order to ensure that companies receive great services, it is comparatively better to in source products and services. This will guarantee swift production and customer satisfaction at all times. This alternative however, limits the companies from obtaining diversified services and at times may be expensive to manage. There are some products/services that cannot be readily available within the company. Therefore, this implies that, companies may still find the need to outsource products and services from other sourcing/supplying companies. Theme II (Strategic Sourcing – Six Distinctive Steps) Companies have now come up with means that make them guarantee financial benefits. Reputable companies make use of these systems which entails raising high standards for the suppliers. This is an aspect that is largely associated with “bullying” where suppliers are forced to suffer tough measures in order to establish a long term relationship of growth and development. From this reasoning, it easy to establish that majority of sourcing companies fails due to poor management systems by both parties. From (Jeffrey, Liker & Thomas, 107) It is clear that companies are devising strategic outsourcing to ensure that their businesses are running smoothly. In addition, these strategies are posing great opportunities that enable firms like Toyota and Honda avoid challenges that most businesses experienced in the present day. Strategic sourcing is an approach that organizations settle on in order to provide an ultimate solution to the problem of unreliable sourcing companies. It is imperative for business firms to productively make use of strategic sourcing. This implies to establishing a powerful, personalized and individualised relationship in sourcing companies or suppliers. Above all, this should be combined with a creative supplier reputation where firms select suppliers who focus on decreasing waste, non value added action plans and expenses. This process will enable companies to be sure of long term relationship with the suppliers. This strategy ensures that customers are satisfied at all times. With a committed relationship with sourcing companies, business thrives and quality is guaranteed. However, one of the major challenges is that, many suppliers will feel intimidated and put off by the way the companies treat them. This can also be described as a “bully” and autocratic relationship for the supplier. This kind of relationship may not be smooth in the long run. Theme III (Global sourcing) It is evident that many companies as well consider vital the need for global sourcing. This is indeed a strategic sourcing that helps them attain financial benefits on reduced operational costs and risks. This initiative is settled on by the size of the opportunity and the probability of team success. John & Robert (40) argue that firms that employ this strategic sourcing end up harnessing the potential of global sourcing. This is also evident in this article: “Through this objective, data-based analysis, managers at Cummins concluded that pistons would not be a core competence. By seeking the most cost effective source for pistons worldwide, Cummins could now focus organisational energy and resources on building leadership in electronics, ceramic and alternate fuels – emerging technologies that will shape tomorrow’s competition.” (Venkatesan, 105). For commodities, where the location of functioning or construction is unimportant, there are frequently a number of alternatives for mid sized business utilization. For services, where the location of operation is very appropriate, the need to transfer services beyond geographical territories (globally) as one way of decreasing the total cost leads is one of the strategic sourcing even for starting companies. In most instances, when fundamental quality is sufficient, price turns out to be the significant factor. However, this process may be challenging especially owing to the fact that, there are national polices and laws that limit a number of inter-boundary transactions. Despite this, difference in currency is also limiting factor for many companies. It can be expensive to convert money from one currency to another in order to purchase some products and services. This option is therefore, favorable for companies that find preferable regulations, laws and business policies in various countries. Conclusion In conclusion, from the observations made in the 3 key themes established in the articles selected, it is apparent that appropriate decisions needs to be made for strategic outsourcing. Subsequent to making a significant decision of where to go and with whom, this decision needs to be trailed. Evaluating the seller founded on the performance is beneficial to equal groups and plainly illustrates the anticipations of both. It is significant for firms to lift up the responsiveness and importantly of sourcing within the firm. Putting into practice appropriate measures of strategic sourcing will guarantee proper running of businesses. Works Cited Jeffrey, K., Liker & Thomas, Y., Choi. Building Deep Supplier Relationships. Harvard Business Review. December 2004. pp104-113 John, Y., & Robert, J. Harnessing the potential of Global Sourcing. Inside Supply Managemnet. April 2005. pp 33-40 Ravi, Aron, & Jitendra, V., Singh. Getting offshoring right. Harvard Business Review. December 2005. pp135-143 Ravi, Venkatesan. Strategic Sourcing, To make or not to make. Harvard Business Review. November-December 1992. pp 98 -107 Stephan, M., Wagner, & Roman, Boutellier. Capabilities for managing a portfolio of supplier relationships. Business Horizons. November-December 2002 The Economist, Boeing Faster, faster, faster. The planemaker struggles to fulfil a rush of orders. Print edition Jan 28th 2012 Read More