How Any Company Can Create Value by Sourcing Strategically?

2021-09-22

成功阶梯插图1.jpgIntroduction

Any company can always be benefitted by doing strategic sourcing. It can accelerate the value creation process, which can set any company on a strong footing and can stand out from its competitors. When we use the term 'value creation' then we mean an additional product feature that will exceed the customer's expectations.

By adopting the policy of strategic procurement, any company can reach out to all their targeted customer base in a very cost-effective way. These strategic sourcing companies can help any business to formulate their policies for procurement on an effective note. By resorting to strategic procurement, any company can understand the various needs of their clients in a much better way.

A few favourable factors to opt for sourcing overseas

The reasons for sourcing from China or any other overseas country for procurement operations are listed as below:

1. Access to raw materials

One of the main reasons for sourcing in China or any other country is that a company that is trying to focus on developing certain products may not get enough resources in their own country.

Also, if they manage to get it, then mostly the quality may not be good enough in respect to the price that they have to pay for. To combat this kind of situation, most companies prefer to find sourcing destinations in the country where such raw materials are available in abundance.

Usually, sourcing in south China like Shenzhen comes to every company's mind as a preferred sourcing destination.

2. Reciprocal trading

Here both the buying company as well as selling company will be involved in overseas procurement. Just imagine a situation, where a company is ready to sell its products and materials to a certain country that can also offer goods that the selling company also requires.

As a result, reciprocal trading can take place between these 2 countries. Both companies can be immensely benefited by signing an agreement between them.

3. Learning the businesses knowhow of other countries

Often this is another benefit with global sourcing that is usually underrated. By conducting sourcing activities in many different countries will enable companies to know about the political and economic scenario of the sourcing country.

In this case, various procurement agencies can help marketers. Companies will learn about various effective ways to trade before initiating any of their marketing initiatives.

4. Can stimulate competition in their domestic markets

Everybody will prefer to buy a product that will cost less. When any company sells lower-priced products as compared to its competitors that have the same quality, then people tend to purchase those products. This will stimulate competition within the domestic market.

For companies sourcing in any cross-border markets can hold huge benefits. Most of the buying agents in China can facilitate China's sourcing activities. Therefore, prefer to go for your company’s manufacturing activities in a certain different country to reap maximum benefits.

What do we mean by low-cost country sourcing?

The success and failure of any business company will be decided by the sourcing policy of the company. Many companies prefer to source from China looking at the resources and trained labour available in that country.

While many other companies try to minimize their operating expenditure by sourcing from China. A low-cost sourcing country like China is a typical example to create affordable sourcing for your company.

What exactly a low-cost country sourcing is?

This is nothing but a certain specialized procurement method, where the sourcing cost will be limited. Companies generally prefer to source from China to keep their expense under control, where the cost of labour and other resources are low. In the low-cost country sourcing, the materials and labour will be procured from countries like China or any other countries all over the world.

By doing advanced real-time analysis, the procurement manager can make global sourcing activity much simpler. Today, any company can monitor resources, inventory, and supply chain statistics that can help to make quick decisions and decide rapidly. Therefore, this activity is considered a valid avenue to pursue reducing the sourcing cost for any company.

Now let us look at a few of the advantages of preferring low-cost country sourcing like China as compared to normal procurement methods.

Cost 插图.jpg1. Abundant availability of cheap raw material

All countries are not blessed with different raw materials of different kinds. A few countries have an abundant source of certain materials while others may lack that. Therefore, if your company prefer to seek raw material that is costlier in your country, then the profitability will reduce.

Low-cost country sourcing will offer you an opportunity to obtain the same kind of material from a certain country where it is available in abundance. For example, sourcing in south China for certain raw materials will be much cheaper as compared to the cost of the same materials in any Western country like the USA or EU.

2. Cheaper labor

As far as per-hour labour wages are concerned, most western countries have certain regulations. However, sourcing any labour out of any other country will allow them to bypass all these regulations and help them to get the work done at minimal expenses.

They will be in a position to both unskilled or skilled labour at varying prices. Even the biggest companies in the world use this technique to limit their overhead cost. As an example, Apple assembles its majority of smartphones in third-world countries to avoid the high cost involved in the USA.

3. Savings on energy and manufacturing

You can save a substantial amount easily that your business must be spending on energy and manufacturing. For example, for production activities, you may need an uninterrupted power supply together with space for your factories where the product can be made.

Both these factors will increase your business expense. On the other hand, if you manufacture your products in countries like China then you can easily avoid paying the premium price for the energy and creating the infrastructure.

While looking for such sourcing from China that is low-cost country sourcing, it is important to go for a certain reputable company for sourcing. Such companies will have much better knowledge about various local suppliers. Without taking their help, you cannot capitalize on their lower prices. Besides, there are chances of scams or fraud that you can limit.

Advantages of choosing China as a sourcing partner

Nowadays, all companies are resorting to sourcing operations to reduce the production costs of their products. Therefore, most of the business companies of western countries are now focussing their attention to conduct most of their procurement activities in certain low-cost countries like Vietnam and China.

Product sourcing in China can offer several benefits. Sourcing from China enables any business firm to reduce the prices of all their products and services. Various reasons like lower production costs, enhanced production capability, cheaper labor, superior infrastructure, etc. can be the reasons for most companies to go for China procurement at large.

Also, China's emerging economy is adding further fuel to this. According to research, it was found that labour cost in China is one of the lowest in the world. China has become a popular destination for sourcing among various marketers because of the following reasons:

1. Cheaper labor charges

Labour costs are quite cheaper in the market of China, unlike all other developed countries. Therefore, if any company tries to conduct any sourcing from China, then they can be highly benefited due to the country's cheap labour cost.

Therefore, any company must establish a positive business relationship with the various factories of China because the wages are much lower there. Most companies can seek assistance from various sourcing agents available in China to formulate their procurement strategies.

Also, China is offering an added dimension to this emerging market sourcing scenario. Now, there will be no need for any business firms to provide additional training to their employees while providing them access to computers because the production operation is now being outsourced. It can help to reduce the expenses of companies considerably.

2. Lower production costs

Even the cost of various raw materials is much lower in the market of China. There will be no overhead charges that will be supplemented with the steep cost of training and high turnover.

If the companies of western countries prefer to manufacture domestically, then it will be too expensive based on their cost structure. China offers the affordability that attracts business firms to go for it.

3. Enhanced skillset

The Chinese workforce is aware of the various latest technologies and also, more importantly, they know how to implement these technologies in their operations. Due to this reason, these companies can always attain much higher productivity levels.

The production capabilities of the Chinese workforce are beyond doubt. They can implement the latest machines in their work approach and that can enable them to produce much better-quality products that they manufacture.

4. Superior infrastructure

If you look at the various infrastructure facilities of China then you will find them much superior and their transportation system is quite fast in comparison to most other Asian countries. This can help in reducing the supply duration to a large extent.

All the finished goods can reach the hands of suppliers within a very short period. Because of the superior infrastructure of China, the procurement sourcing from China scenario has become very popular among the marketers of the world.

5. Proactive suppliers

You will find Chinese suppliers are quite proactive, and that is an additional advantage for companies that are looking forward to outsourcing their entire production activities. Whenever there will be any manufacturing problem, these suppliers will immediately contact marketers.

6. Favorable political climate

Also, the political climate of China is quite favorable to various procurement activities of different companies. You will not find any government regulations regarding trade and tariffs.

Therefore, if sourcing operations are properly conducted then companies can be highly benefited from them. Now, China is the emerging market sourcing destination due to all the above reasons. So, if you are interested to boost your marketing campaign for your company then go for sourcing in China.

Few steps to create value through strategic sourcing

Companies that are interested to engage in their value creation via strategic procurement should conform to the following few steps:

1. A critical assessment of their expenses

The initial step of any strategic procurement process will start with a critical assessment. During this stage, the company's team responsible for sourcing must scrutinize the policies of procurement of their company.

In simple words, they must analyse all the spending of the company. After that, the team must formulate their spend analysis. This will help business companies to acquire much better control on their cost while revenues are coming. Companies can minimize their entire cost of acquisition in this way.

2. Assessing supply markets

If the companies have sufficient knowledge about the scenario of the markets of the procurement destinations then a full proof assessment about the supply markets is possible.  Most of the time, companies have difficulty addressing this problem.

Here the role of any sourcing team will come into play. By taking the guidance of this procurement team, companies can always get a much better picture of the existing market resources.

If they prefer to listen to the solutions offered by this team then the business companies can get the full advantages of low-cost country sourcing.

3. Assessment of cost structures

Every company must conduct a complete analysis of the cost to decide the costs of various procured goods and services. Depending on such cost analysis, companies can formulate their overall business strategy. By taking the help of any procurement agency, the organization can easily reduce its cost of production while lowering the cost of all its products and services.

4. Choosing business process partners

Doing an analysis of the supplying markets can help the companies to connect with various raw material suppliers, their manufacturers, and distributors. By identifying possible partnerships can lead to the procurement policies formulation.

5. Product strategy

Companies must apply the strategies to develop their existing products into a certain brand name after realizing their potential opportunities. Strategic sourcing companies can make various organizations aware of the current political and economic scenario of their procurement destination.

Thus, in this way, any company can channelize all their production activities in the proper direction.

6. Negotiations with suppliers

Before the sourcing plan gets implemented companies must sign contracts and agreements with the supplier parties. Here during this process, price determination and also logistics assessment must be included.

7. Implementation

No plan can work without effective implementation. The new strategy that developed must be properly implemented in such a manner that companies can accumulate maximum profits. Also, after the execution, companies must conduct a periodical review to enhance their present action plan.

Companies can be tremendously benefited from these strategic sourcing activities. They can lower their cost of production because of preferring any low-cost country sourcing activities. It is necessary to consult professional sourcing consultants while initiating procurement activities for your company.

插图2.jpgChallenges in global sourcing

There is not everything hunky-dory about global resourcing. There are following few challenges too.

1. Dealing with unknown territories

For most people of western countries, China is a big puzzle as culturally and geographically it is a completely different country that can offer a big risk.

2. Barriers in language and communication

Only a handful of people in China are familiar with English language and hence the communication with Chinese companies is very difficult.

3. Limitations for quality control

China has a bad reputation for cheap quality products, though things have changed a lot. However, the perception still remains.

4. Transportation and logistics

Since it is a far east Asian country and hence transportation of logistics may take a longer route.

Solutions for tackling global sourcing barriers

However, all these concerns can be addressed by following these approaches:

1. Background research

Before dealing with any Chinese companies, you must do enough research to know their background. Take help from the local embassy if required.

2. In-person visit

Make a trip before you finalize a deal with any company so that you can ensure that you may not become a victim of any fraud or scam.

3. Sourcing company/partner

You must hire a local sourcing agent who can communicate with the Chinese company on your behalf and ensure the proper quality of products. This will also help to have better clarity in communication and avoid any confusion when you are dealing with any of your Chinese suppliers.

Benefits of having a sourcing agent

Especially, while conducting business with Chinese companies, you may encounter all these challenges. Therefore, hiring a sourcing agent can take care of all these problems. There is quite a good competition among these agents and hence you can get their services at a very competitive price.  

This will enable you to overcome the language barrier that most other countries may face in China and also maintain healthy long-term business relationships.  

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