What is the definition of "sourcing" in business? It’s a complex and strategic process aimed at providing the enterprise with the assets it requires to operate properly. It includes selecting and contracting services and choosing and obtaining goods.

 Sourcing has a great impact on supply chains; it can be both positive and negative, depending on how it’s done. Providers affect the company's operation in multiple ways:

• Financial: the cost of your procurements is a vital part of your budget;
• Inventory levels: surely you want your stock to be efficient and compliant with the market’s demands;
• Quality of your products. Needless to say, it determines the value of your goods for customers, your reputation as a provider, and, therefore, your success.
• Timings: punctual arrivals and dispatches have key meaning in a successful operation; they maintain the stability of your operational processes and reduce waste as some goods may be sensitive to time, such as fresh green produce.

 

The significance of sourcing for supply chains

 

So, why is sourcing important? If done well, it helps the company owner maintain both the quality standards and the cost-effectiveness of the production operations. Oftentimes, it is also useful for keeping overhead expenses and inventory levels in check. Additional advantages of introducing sourcing into the supply chain may include:

 Management of carbon footprint and logistics processes. For example, by choosing local products, you reduce the transportation distance, which cuts carbon emissions and simplifies your logistics chain.

• You can stand out from the competition by collaborating with a reputable and well-known brand, and you can use this fact in your own promotion. Think of a laptop brand emphasizing its use of Intel processors or Nvidia graphic cards.
• Contracting with suppliers who produce certified goods helps ensure compliance with state laws and regulations.
• You can contribute to business sustainability by opting for sustainably manufactured products. It is an ethical approach that helps the economy, ecology, and society in the long run.
• You can mitigate volatile geopolitical situations by diversifying your providers according to their locations and developing contingency plans in case of a crisis.
• Risk management and prevention of force majeure. Auxiliary and alternative providers will help you escape tough situations such as your supplier becoming unavailable, skyrocketing prices, or suffering a disaster. In combination with close monitoring of any changes in service, it creates a powerful tool that allows you to be happy with your provision.

Functions of sourcing in supply chain management

Let’s look closer at possible uses of sourcing. Because some roles of sourcing in a supply chain may not be obvious, we added some commentaries explaining the connection.

How to choose a good and reliable supplier is a question that deserves separate research. Some significant points related to the topic were mentioned earlier in this material; we will only remind you to keep your sources differentiated and monitor them to be ready to switch if needed.

Product design

Enterprise collaboration

It’s vital when you need complex components for your product. The case of laptops with Nvidia or Intel integrations described above can be a good example of manufacturer collaboration.

 

Representative cases of profitable sourcing in business

Procter & Gamble is a well-known manufacturer of consumer goods. This multinational corporation produces detergents, liquid fabric conditioners, dishwashing gels and liquids, razors, shaving soaps, creams, and whatnot. However, the corporation never made an attempt to interact with the customers directly and create in-house points of sale.

All P&G detergents and hygiene products are sold by independent retailers. This increases the awareness of the brand's target audience because brand products can be found in many shops. It can also enhance the availability of the product for customers, who can buy it almost anywhere instead of driving to a particular shop.

Nestlé, a famous manufacturer of foods and beverages, made a bet on sustainability. The company is dedicated to maintaining fruitful and long-term partnerships with suppliers who maintain an ethical and environmentally friendly approach to production.

Cola-cola is one of the most popular drinks in the world. The company is determined to source the most qualitative ingredients and strives to introduce innovations both in packaging solutions and product series.

Conclusion

In this material, we've described the sourcing definition in supply chain management, its functions, implementation scenarios, and positive cases that show what sourcing in the supply chain is capable of. As you can see, when performed thoughtfully, it can become a powerful tool.

Good sourcing will allow you to save some of your budget, but not at the expense of your reputation or the quality of your products—in fact, it can help improve them, too.