Sourcing entails the process of critical refers to the process of critical evaluation and analysis and the determinant of the best party to provide certain products or services to a particular organization. Sourcing is a crucial element in procurement. A recent study by (Wagner, 2006) refers to the development practices by suppliers as a strategy that is applied in procurement in order to utilize and maximize the global efficiencies that emerge in the production processes. Sourcing as suggested by its name is a subsection under procurement and it involves the location of where a company will purchase its goods and services while maximizing output. Sourcing then is considered to always aim at looking for the most economical means in the company i.e., looking for the best suppliers with the least cost available. It’s this different from procurement which only deals with the logistical matters of the acquisition of the materials to be supplied. The least expensive suppliers are usually chosen to supply their products and services under the assurance of the provision of topnotch work. Thus as stipulated by a recent study by (Berry and Kaul, 2015) as they argued o the vital factor of global sourcing and the knowledge gained in the practice. This subsection of procurement entails doing a research on the market, negotiating with the suppliers for the best price amicable to and the act of testing or the quality in the products and services by the supplier. This sect of business is very vital because the profits that accrue to the organization tend to rely on the best sources which will be least expensive.
The activities sourced involve transportation, production processes, and storage and information management. However, a study by (Carter et al., 2010) illustrates that at this particular level of strategy in an organization, sourcing usually the functions in the organization that is sourced and those that are outsourced. The decisions made in sourcing usually have an impact on the efficiency and the responsiveness of the specific supply chain.
Role of sourcing in modern purchasing
Purchasing entails the acquisition of commodities by buying them. Modern purchasing involves payment and receiving and is entailed to various steps such as the acknowledgment of the order purchased to the organization, A reshipment notice, then the receipt of the goods to be purchased, the recording of the invoice and finally the payment to the supplier. These are the key step of modern purchasing and must be applied effectively so as to maintain business sustainability. Sourcing plays a vital role in modern purchasing. This is because sourcing plays a vital role in the management of the cost factor and the sense of demand of both large and small organizations as investigated by (Berry and Kaul, 2015). Sourcing skills are highly applicable in the analysis of purchases made in high volumes and the development of relationships which last longer with the specific team of suppliers who offer the best products and services and at the same time are the least expensive.
In modern sourcing, strategic sourcing thus enhances the value to the relationship in prices as it improves the quality of service that is offered and lowers the cost to the minimum levels. Sourcing is responsible for the examination of cordial relationships between suppliers across the organization. According to the study by (Chen, 2016), there is a need for testing quality in the sourcing process. This facilitates the creation of partnerships with suppliers. Sourcing is key to decision making in modern purchasing. This is because sourcing usually employs a collaborative ideology and approach that is beyond the purchasing department. This is crucial as decisions on purchasing are made regarding intelligence for the market and analysis and not just mere individual perceptions and opinions. Sourcing improves value creation in modern purchasing. It enables organizations to purchase goods and services on a cost-effective basis. Sourcing thus enables the management of organizations long-term cash flow and eases the planning of the organization. Sourcing also has played a key role in modern purchasing as enables organizations to use sourcing that is more orchestrated as an organization outsources its activities to the outside parties which would, in turn, enable the management to keenly focus on the core activities of the organization such as marketing and the development of products.in the production process.
Sourcing as outlined by (Sachinopoulou, Ikävalko, and Lähteenmäki, 2016) play is key in the management during modern purchasing. Since it improves the relationship between the suppliers. These close bonds between suppliers enable a company to easily identify and solve the arising issues.
Yes, companies should continue searching for the best local cost country regions. The low-cost country sourcing involves the strategy whereby a company decides to source materials from regions which have lower labor costs and the initial production input lower in a bid to cut the operational costs that would be incurred. It entails two parties i.e., the supplier and the customer. However, there are forces driving companies to the regions with the lower-cost country region (Lorentz et al., 2014). Taking advantage of the price differences by the arbitraging company. This enables the company to obtain the sourcing efficiencies through arbitraging for the price differences in the different geographical regions. Improved manufacturing capacity is also a key driver to LCC regions as companies will prefer the improved manufacturing in order to meet the customer demand for its product and services. Hence companies will be driven to the regions as output by the organizations will be of high quality and in a short period of time. Logistics benefits to the company also drive it o the low- cost country regions. Here the company will be driven to the LCC regions where the movement and storage of the company’s products and services are well catered for. If the LCC regions enable the company to attain increased customer satisfaction, save the labor time and cost saving then the company will be driven to the local cost country regions. Another key factor that drives a company into low-cost country regions is the quality of goods. The sense of the top quality of good produced and services rendered will attract the company into the lower-cost country region. This is because all companies are always after minimizing inputs and maximizing output. The high-quality goods will mean that the company will be accrued to with lots of profits and higher customer satisfaction hence the company being attracted to the regions.
Despite the pursuing of the lower-cost country regions, some hurdles may also deter the company quest for this. This involves the current state in the regions. The challenges that companies face are outlined as risks. This includes security risks. Many countries with lower cost global sourcing are usually third world countries which have an unstable political environment. The political uncertainty causes instability. Recent studies by (Levinthal, 2018), it is demonstrated that in the region making it difficult for the supplier to provide goods and services effectively. Cost risks can also be a big challenge. This is because the regions have different time zones and varying cultures. When a company decides to pursue a lower-cost country region, there may be hidden costs also the efforts involved in the monitoring of the global manufactures lead to the company incurring more costs on its side. Intellectual property risk is a key challenge to the company intending to pursue the lower cost country region because it will have to face the risk of losing its intellectual property. This is because the style of manufacturing, its engineering tech antiques, and design are exposed to several people hence risk the loss of the intellectual property rights.A company may also face the challenge of poor quality goods if the manufacturing processes are not well managed. This can lead to the company’s brand is damaged hence low quality. The candidates are as discussed hence the challenges (Hultman et al., 2012).
Product development is mostly based on the pursuit of lower cost country region. Companies tend to choose products which are needed urgently in the marker thus the lower cost country region will reduce the time to the Market hence the perishability and urgency of the product is key, to manage costs of producing the product. Products which have their resource materials in the lower cost country region are also appropriate as it will help in the cost-effective management practices in the company. A product or service is also determined for the LCCs if the level of technology required is in the particular LCCs. Products considered can also be for LCCs are usually those in which the labor used in their production processes I lower in the LCCs hence maximizing the profit of the company.
Amcor Company is a global company whose main head office is in Australia. It consists of subsections such as Amcor flexible and other investments and the Armco rigid plastics. It deals with the production and development of flexible packaging commodities, cartons, and a rigid container. The company has more than 35,200 staff employed and operated in over 35 countries globally. This is a globally renowned company thus in 2017, it earned 9$ billion in its sales. This company divided into two.it easily operates due to this: the flexible packaging is assigned the role of developing and supplying the specialty folding cartons while the rigid plastics are suppliers of rigid plastic packaging. Thus its products are used for the protection and storing of foods, medical commodities, household items and beverages. Thus the primary role of this company’s packaging
Amcor is a global company, it applies strategically sourcing in its operations. The availability of the raw materials is a key element in its business that is sourced from the low-cost country region. The raw materials being readily available and cheaper in the LCCs, Amcor expected high returns as it expected the saving of costs to be higher thus more savings. The labor element in is business is also vital. The company sourced labor from the low-cost country regions due to the availability of cheap and ready labor in the lower-cost country region. Over the last 5 years, Amcor has sourced labor from East Africa countries due to their minimum wage price levels. Technology is a vital factor in any business production, was key in the sourcing by Armco. The company sourced technology in the manufacturing from countries such as the United States due to the presence of advanced technology in the United States. Markets are a key business element in sourcing from the lower cost country region. Ready market from the LCCs will be an accrued advantage to the company will maximize its profits.profits.Its packaging commodities will quickly sell out due to the high demand thus ready markets from the Lower cost country region (Guo, Lee, and Swinney, 2016).
The primary principle behind Amcor sourcing from the lower-cost country region was cost-saving. Taking advantage of the global efficiencies, the management of Armco decided to cost saving. This is because sourcing from the regions with lower labor costs enables the company to save more on the costs incurred during the production process. The proximity of raw materials to the company in the lower cost country region was key in the company compelling itself to source from the lower-cost country region where the proximity to raw materials reduces the time to market and also saves on the costs that would be incurred in the transportation. Armco expected high-quality goods from the LCCs compared to the domestic products thus responsible sourcing as demonstrated by (Guo Lee and Swinney, 2016). This is because in the LCCs such as the Middle East i.e. Pakistan, the materials used for the production of packaging materials are cheaper to produce and there is the availability of enough cheap labor to work on them. This ensures highly qualitative products.
Security risks. Armco Company faced hurdles in its operations due to political instability in the lower-cost country regions. Middle East countries such as Pakistan where the company sources its services. Other third world countries such as East Africa countries i.e. Congo are afflicted by political instability hence there are dire consequences of low-cost country sourcing o the supply chain of the company as investigated by (Lorentz, Töyli, Solakivi and Ojala, 2014). The political mood in a country can either encourage or discourage activities in a certain region. Intellectual property risk also faces Armco in its operations. The graphic design and engineering techniques used in the preparation of the plastics are exposed to the source regions where more counterfeit products are produced. This is a breach of the intellectual property rights of the company, the produced sourced also tend to be of poor quality as in most countries, they were not well managed. The failure to manage the manufacturing of the packaging commodities led to the production of poor quality packaging commodities.
The company faced many challenges in sourcing its packaging products. This led to the company failing into the sourcing strategies. Thus the company in it 5 years of experience in sourcing has been a failure in its operations due to the challenges that it faces. As investigated by (Bremen et al., 2010), the transaction costs in the sourcing process bring about inconveniences. The company faces hurdles which hinder its sourcing processes in the lower cost country regions. For the five years, it failed in the sourcing process in the manufacturing due to the limitations and disadvantages of sourcing. The difference in time zones between Australia and lower cost country regions such as Pakistan and Thailand have different time zones. This is a cost risk which usually faces the company.
Conclusion
Sourcing is a crucial element in the procurement process. It is of benefit to the business since it enables the business to identify the least cost-effective supplier that offers the best products and services at the minimum price levels. Sourcing is key in the cost-saving techniques and the value creation of products due to the developed supplier relationship as investigated by (Liker and Choi, 2004). This is because it enables the supplier in an organization to come up together in case of any casualties. This is key in the risk management in the organization as it enables the organization to become more cautious in the business.
References
Berry, H. and Kaul, A. (2015). Global Sourcing and Foreign Knowledge Seeking. Management Science, 61(5), pp.1052-1071.
Bremen, P., Oehmen, J., Allard, R. and Schönsleben, P., 2010. Transaction costs in global supply chains of manufacturing companies. Journal of Systemics, Cybernetics & Informatics, 8, pp.19-25.
Carter, J., Maltz, A., Maltz, E., Goh, M. and Yan, T. (2010). Impact of culture on supplier selection decision making. The International Journal of Logistics Management, 21(3), pp.353-374.
Chen, J. (2016). Sourcing for Quality: Cooperating with a Single Supplier or Developing Two Competing Suppliers?. Mathematical Problems in Engineering, 2016, pp.1-13.
Guo, R., Lee, H. and Swinney, R. (2016). Responsible Sourcing in Supply Chains. Management Science, 62(9), pp.2722-2744
Hultman, J., Johnsen, T., Johnsen, R., and Hertz, S. (2012). An interaction approach to global sourcing: A case study of IKEA. Journal of Purchasing and Supply Management, 18(1), pp.9-21.
Kumar, N., Andersson, D. and Rehme, J. (2010). Logistics of low-cost country sourcing. International Journal of Logistics Research and Applications, 13(2), pp.143-160.
Liker, J.K., and Choi, T.Y., 2004. Building deep supplier relationships. Harvard business review, 82(12), pp.104-113.
Lorentz, H., Töyli, J., Solakivi, T. and Ojala, L. (2014). The effect of low-cost country sourcing on supply chain administration cost. International Journal of Logistics Research and Applications, 18(1), pp.1-15.
Sachinopoulou, A., Ikävalko, S. and Lähteenmäki, J. (2016). Suppliers view on benefits and challenges of the PCP process for healthcare providers and SMEs. European Journal of Public Health, 26(suppl_1).
Wagner, S. (2006). Supplier development practices: an exploratory study. European Journal of Marketing, 40(5/6), pp.554-571.
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