Sourcing has been said to evolve from a traditional purchasing approach that was transactional where people and companies buy according to their instant needs, selecting freely from all the suppliers that can meet their immediate or futuristic needs. Traditional sourcing was a business transaction where each procurement was treated as a distinct transaction. Sourcing agency enhances profits for suppliers, and recognized competition may boost the savings, this is termed occasional savings opportunity. In fact, the supervision of the services and activities performed by the sourcing agent provide a benefit to suppliers because it provides access to more information regarding the production.
However, Purchasing goods and services from a foreign country might be difficult without the assistance of souring agencies. A successful sourcing agency will understand the nature of the marketplace. This may include the roles of suppliers in the marketplace, the importance of purchasing goods and services relative to the entire market demand, the balance of demand and supply, availability and accessibility to raw materials, manufacturing processes, etc. Knowing these will help an organization to prepare for futuristic changes that might occur in the marketplace. Strategic sourcing agency uses a strategic method of selecting appropriate suppliers; an approach is more aligned with the company’s competitive approach.
The present monetary atmosphere together with the economic condition is requiring companies to carefully look at their procurement procedure such as; purchasing choices and purchasing strategies, which involves buying and selling decisions and delivery process being a major concern. In financial and economic crises, there would be competition with rival companies, which may compel the business management to take a cognizance look at their procurement systems for proper restructure.
An organization’s methodologies and ground plan for attaining a more efficient and effective corporate procurement vary from one another, and they are prepared according to the organization structure. The global business is taking positive steps in other to maintain cordial relationships with their suppliers. Most marketers are contented with procurement using sourcing agency especially in the areas such as collateral, promotional items, tools, training, etc. Sourcing agency remains one of the challenges for procurement since a huge amount of money is given to the agencies.
Marketing agencies have been grouped into different categories, some of which are:
• Event overseer
• Sports and entertainment
• Agency of record
All the categorization mentioned above are useful in sourcing and managing suppliers, as a different business body within corporations chooses their preferred agencies depending on the business area or geographical location. The process for selecting the supplier is being driven by the relationship among the marketers from one company to another. Creating a sourcing agency council with multi-functional activities such as Procurement, Finance, Entertainment, and Marketing can enhance decision making in every organizational setting. Several methods can be used in sourcing agency spend; this depends on the competitive situation.
Procurement strategies are considered as basic administrative philosophies that involve the continual production of goods and services that are trusted by the customers and are delivered at the normal time. Many factors are affecting procurement strategies practices, among which are; the periodic training programs for the staffs and the suppliers, Implementation of the knowledge acquired through this program has a long way to go, as it will lead to perpetual profits for both parties (the company and the suppliers).
In recent time, many changes have been recorded in both manufacturing industries and the retailers’ sector; among which is the changing environmental condition such as; modification of retail formats and globalization. Manufacturing companies must operate in such a way that favor retailers and create a condition that increases their service while reducing costs. The target of many companies is to develop efficient and effective procurement strategies to remain competitive, and this procurement strategy will not be effective unless it suits the needs of the business and maintains consistency between the company’s capacity and the competitive opportunity. Many companies are aiming to develop a procurement strategy in other to remain competitive.
However, some procurement body has been influencing business decision-maker through a painstaking analysis of supply base and understanding the needs, goals, and target of the business companies. One of the main purposes of procurement is to reduce the procurement costs since many companies invest nearly half its sales revenue on the procurement-related resources. The total activities from procurement to the customer account for the main strategic supply chain management. The ability to combines the purchasing activity and other business activities result in improving the quality of goods and services. Purchasing professionals are aware of the importance of having an appropriate strategy for the business transaction to meet the needs of their company. This is true especially when there is a risk of a long-term scarcity of the purchased products.
There are two major sources of costs in procurement literature, as identified by many scholars: the first one being the procurement prices while the second one is costs associated with the internal workflow of activities that complement the business transactions.
Procurement prices: This can be reduced when a company can maintain business relations with their suppliers. In fact, it has been suggested by the transaction-based explanation that a buyer may increase their ability to negotiate by using newly supplied materials and realizing savings in purchasing costs. Procurement costs can also be reduced by the company’s ability to manage internal activities that complement transactions, which may include; inventory, delivery, billing, etc. effectively and efficiently.
Purchasing strategies can as well be used as a tool for effective cost procuring decision from people who will deliver the goods at a stipulated time. There are several purchasing strategies, and they include the decision-making purchase savings using centralized procurement that is consolidating the completely purchasing activities within a particular location. Some companies may choose to adopt only one procurement strategy where services are obtained from a single vendor, and these strategies are common when sourcing for indirect purchasing. However, some companies when in need of labor for a short-term project may use purchasing auctions in other to reduce the price level.
Most of the companies implement different procurement strategies. Some of which are listed below:
• Optimized Supplier: Here, the company will optimally mix the vendors base on their ability to provide the best prices and terms. The process means that any supplier that is not capable of providing a quality service required is removed. This is most commonly used procurement strategies.
• Total Quality Method: This method requires the sellers to offer error-free and high-quality service. The suppliers to ensure best procurement practices can use many tools example of which is six sigma.
• Managing risk: Since the suppliers could be from many countries, for instance, many companies obtain their supplies from countries like India, China, among others, so they are more concerned with the risk management of this supply chain. The countries involved may offer their goods at a reduced prices, but the disaster may hinder this privilege.
• Sourcing: since the whole world has been seen as a significant market, hence, sourcing agency could be from any country, regardless of tribe or color.
• Green Purchasing: another common purchasing strategy for companies is the green purchase, which involves recycling and procuring goods that have an adverse impact on the environment.
There are challenges facing procurement agents when implementing pre-qualification procurement, including very few or no technical experts, time constraint, cost implication and standard setting. Another identified shortcoming is poor procurement management. Another flaw of procurement is that performance is not frequently accessed or measured in most business organizations, the same way human resource and finance functions are accessed. Hence, there is a need for regular and frequent assessment of procurement. Another challenging of procurement is the lack of transparency even during the period of negotiations.
Some activities of a sourcing agent are identified below:
Conduct research on supplier: Many Sourcing agents handle the database of suppliers, it is on this database that the data such as names of the companies, their contact address and number, e-mail id, office address and address of the supplier are stored. The sourcing agents carry out a thorough research on the suppliers’ products in other to make a suitable decision afterward.
Negotiate price: after the selection of suppliers, the sourcing agent will then discuss prices with the selected supplier.
Clear Communication: sourcing agency ensure clear communication with the suppliers. They are from different part of the worlds and communicate with the supplier according to his language. For instance, the Chinese agent speaks with the suppliers in Chinese. Hence, there is no communication barrier between the company and supplier.
Shipping and transportation: Sourcing agencies work with freight companies. This company transports goods from the warehouse to the dockyard.
The use of auction is one of the most important factors influencing the business process because it has a direct effect on the performance of the business. Many companies require skilled people to occupy the different position. Nowadays, many of the companies are outsourcing the recruitment process to sourcing agencies to appoint a qualified candidate for a particular area.
Increased speed of hiring: sourcing agent can hire many people in a short period since they have knowledge and resources, which enhances their hiring process. They can perform the task efficiently within a short time with better quality.
One of the major strategies for business procurement is the use of sourcing agency in increasing future sustainable savings at different operating levels.
Sourcing agency plays significant roles in helping corporations to reduce the cost of their products and to change the internal systems to have more effective and efficient transaction outcome.
The right sourcing agency can manage the flow of cash through well-defined procurement efficiencies in company’s operations.
A sourcing agency verifies the quality of goods and services you are about to buy. They can even send their representatives to check the products at the warehouse of the supplier, and this enables the agents to determine if the quality meets international export standards.
Sourcing agency will guide the management in different market operations ranging from marketing analysis, transaction (buying and buying) decisions, content management, spending, and buying techniques.
Sourcing agency sets the standard for a company and its ability to develop, most especially in a recession and severe economic crises.
Sourcing agency helps in saving time without disrupting the investment strategies. For a competitive gain from large companies, middle companies and small companies in any market can gain benefit from procurement strategies for the required goods and services.
Strategic sourcing agency can be used to access suppliers, most especially the ability of the company to produce quality products. Companies need to maintain a cordial relationship with the supplier, which can be advantageous if the companies judiciously use their resources. Strategic sourcing agency includes; creating a sourcing strategy, selection of suppliers, purchasing of materials and maintaining relationships with the supplier.
Communication and Training: Communicating the new business processes, goals and strategies are very important. There are various ways of doing this; it can be done in staff meetings, road shows, through newsletters, and in marketing. All the necessary information such as the new contracts and pricing information should be shared with the concern people worldwide to ensure advantage. Suppliers also should be aware of the changes so that they can comply with and benefit from business process improvements.
Procurement staffs must be updated with what is happening in the business industry and within marketing department across the world. The skill development is very crucial to enhance staff’s selling and persuasion. Procurement should also be flexible.
In a nutshell, procurement should be seen as a strategic tool in the value chain. It usually consumes a huge amount of money in a company’s cost structure most especially government agencies. It can also be concluded that business organizations should ensure they employ competent employees as sourcing agents.
Finally, there should be a periodic analysis of the effectiveness of the company’s staffs and review of the company’s plan.