From the course: Supply Chain and Operations Management Tips

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Adopt strategic sourcing

Adopt strategic sourcing

From the course: Supply Chain and Operations Management Tips

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Adopt strategic sourcing

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- When it comes to procurement, many companies focus entirely on measuring materials' costs, in other words they simply look at the price that they pay for their ingredients, the materials that they buy, but reducing material costs can also lead to a reduction in quality, reliability, and responsiveness, and that can end up costing you more money in the long run, that's why it's important to use strategic sourcing, an approach that looks beyond just material costs and maximizes the value of procurement for your supply chain. Let's look at an example. Say your supplier's agreed to reduce their price if you'll let them switch to cheaper raw materials and a less reliable mode of transportation, of course saving money is good, but depending on your business, these changes can actually lead to an overall increase in your total costs because you'll need to do more inspections, carry more inventory, and pay to expedite the late shipments. Strategic sourcing involves having a broader…

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