Disadvantages Of Strategic Sourcing

STRATERGIC SOURCING/PROCUREMENT

Strategic sourcing is the development of relationships between the supplier and the management to acquire goods and services for the needs of the business. In the past SOURCING was termed as PURCHASING. The term SOURCING implies a more complex process suitable for products which are strategically important.

Today due to the competition and the emerging new technologies, competitiveness between firms is vastly observed; therefore acquisition of the best available capabilities inclusive or exclusive to the organizations is given vital consideration.

In such matters sourcing is not only taken at the level of management but also considered a crucial element of the survival of the business and given high importance.

These software are still labeled as procurement software, most commonly used software is ERP (Enterprise Resource Planning) system. COMPETITIVE ADVANTAGE

Competitive advantage is the ability gained by an organization to over power and performs better than the rival organization. This is the property and organization holds against their competitors. This can be gained by provision of goods and services of higher value at an affordable price (Value-quality balance).

According to Michael Porter there are 2 types of competitive advantages;

1. Low cost

2. Differentiation

These 2 types can be integrated with strategic procurement and implemented to outperform the rivals and attain market positions, skills, resources etc.

"A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player" (Barney 1991 cited by Clulow et al.2003, p. 221)

The 3 strategies that can tackle competition based on Michael Porter

INTEGRATION: STRATEGIC PROCUREMENT AND COMPETITVE ADVANTAGE

Integration of strategic procurement and competitive advantages in an organization leads to basic competencies such as having access to raw materials, suppliers with an effective system for measuring quality of products supplied; develop advantage over competitors in relationship with suppliers, working close together with suppliers on product development efforts and close working relationship with suppliers to improve each other’s processes.

This will foster benefits for both company and the supplier organization, while providing the maximum transaction value in the long run. Sourcing or procurement is the main aspect of a business organization when considering inputs. Sourcing is the methodology of finding the right supplier, right product, in the right time, at the right price, in correct quantities and right qualities. Sourcing strategy can be illustrated in the following process.

Supplier  Inputs  Process  Output 