Sustainable Sourcing Processes

Typically, sourcing is finding the most suitable supplier that provides the quality of goods or services at a price point that gives the business owner the profit margins they need. Sourcing and procurement management fit together like hand and glove. 

But before you can procure goods, it is essential to:

Find prospective suppliers and implement a rigid vetting process

Establish a stringent screening procedure for potential suppliers to ensure that no mistakes are made during the sourcing process because it can be costly to reverse course. In today’s competitive market, leading companies have begun to look at creating value while not ignoring cost and waste reduction, even though most business leaders focus primarily on the benefits of strategic sourcing that reduce costs.

 

Three factors are central to the sourcing process, and these are:

1. Cost structure
2. Profit margins
3. Competitiveness

All three factors affect businesses of all sizes.

The sourcing process involves:

1. Collecting data on good quality sources of goods and services
2. Negotiating contracts
3. Market research
4. Product testing for quality
5. Considering outsourcing for goods
6. Constituting standards that the company will use.

You must keep in mind that the end goal of sourcing is procurement. Steps in the procurement process include:

1. Logistics
2. Communications
3. Negotiations

Analysis reveals that, in each case, top ESG performers enjoy faster growth and higher valuations than other players in their industries. Companies with strong ESG credentials focus on operational efficiency and waste reduction, which reduces costs by 5 to 10%. ESG excellence also helps businesses stay ahead of changes in regulation and stakeholder sentiment, lowering transition risk.

Cost-Saving

The first and most famous advantage of vital obtaining is how much cash associations can save by choosing and picking providers that will offer the most elevated esteem at the most ideal cost. Your bottom line will benefit as a result of this cascading effect.

The honing of ideal suppliers

Powerful execution of an obtaining cycle has its establishment on the nature of the providers in question. Procurement teams need to have access to supplier profiles and comprehend the fundamental capabilities of the suppliers they select. Because of this, you will be able to match the goals of your company with the ideal supplier, resulting in the highest possible value creation at the lowest possible cost.

The establishment of a long-term relationship with suppliers

At the point when providers are esteemed and considered in different obtaining choices, they will feel roused and improve their presentation to meet your association’s goals.

From field to shop, Which apparel sourcing agenda top your list of sustainable sourcing for the next 5 years?

1. Sustainable material
2. Transparency and traceability
3. Supplier relationship
4. Purchasing practices
5. Ecological footprint
6. Circular economy
7. Plastic and packaging
8. Sustainability transformation

Apparel Companies report that the greatest priority for action is sustainability and internal process improvement.

Below is the list of some of the big areas across the horizon as goals or agendas for the brand.

1. Sustainability and transparency
2. Digitization of the sourcing processes and related areas
3. Consolidation of the supplier base
4. End to End process efficiency
5. Cross-functional collaboration in own organization
6. Advanced Analytics (Intelligent Sourcing)
7. Supplier Partnership Program
8. The shift of sourcing countries
9. Development, retention, and attraction of talent in sourcing

Sourcing strategy 

Globalization has magnified the level of competition in the business arenas. Therefore, it has become paramount for organizations to leverage the power of globalization and improve performance. Therefore, the role of effectively sourcing goods and services from suppliers has become unavoidable.

The need for an effective and strategic sourcing process that enhances an organization’s performance and efficiency has increased due to the volatility of the global market.

So, in essence, strategic sourcing refers to the process of identifying your spending profile and supplier base to ensure that your business requirements are aligned with the suppliers. This is a proactive, holistic, and continuous evaluation and re-evaluation of the sourcing activities in your organization.

Strategic sourcing aims to decrease supply chain risk, forcing procurement teams to develop strong and positive relationships with their sourcing partners. The supplier is viewed as a crucial value partner that collaborates with the organization.

Lastly, with strategic sourcing, there is more intensive monitoring of the customer-supplier loop at every stage of its lifecycle. 

This means there needs to be:

1. Spend analysis
2. Supplier evaluation
3. Supplier relationship management
4. Detailed market research 

This implies that key obtaining is a drawn-out interaction and requirements a talented workforce and significant innovation stages and devices to become fruitful.

Benefits of Strategic Sourcing

Increasing the level of cost savings achieved by locating and choosing suppliers who will provide the highest value at the best price is one of the benefits of strategic sourcing.

It increases the level of cost savings achieved by identifying and selecting suppliers that will provide the highest value at the best price.

It allows buyers to negotiate lower unit prices for his-volume purchases, thereby reducing the cost of goods sold.

It allows your organization to stay competitive where prices are concerned and provides continuous higher cost savings.

It benefits the suppliers who have the assurance of predictable orders and long-term cash flow visibility. 

Businesses that rely on goods and services that are susceptible to disruption benefit greatly from establishing stable supply partnerships through strategic sourcing.

Steps in Strategic Sourcing: 

1. Building a Sourcing Strategy
2. Analyzing the Supplier Market
3. Requesting Information from Suppliers
4. Identifying Selection Criteria Selection of Suppliers
5. Execution of Contracting Process Measurement 
6. Periodic Tracking of Supplier Performance 
7. Implementation of Supplier Relationship Management 
8. Identification and Categorization of Spend Profiles 

How to Conduct Sourcing?

Consider your supplier to be a business partner because the supplier you choose can either help or hurt your company’s reputation. Because they have a significant impact on your business, you need to have faith in that supplier and rely on them. Having said that, there are particular characteristics that you ought to focus on, and they are as follows:

1. How long the supplier has been in business and how much experience they have
2. Their ability to negotiate prices
3. Their adaptability to changing order quantities and delivery times
4. The range of products and/or services they offer; traceable customer reviews 
5. Accommodating customer service 
6. Financial stability

After choosing a supplier, the next step is to conduct research and reach an agreement. This requires face-to-face meetings with suppliers for price negotiations. With strategic sourcing, it is essential to reach a deal that benefits both parties. It’s important to talk about the turnaround time, payment terms, cancellation policies, and minimum order quantities.

The following elements must be included in your vendor agreement:

1. The description of the goods or services that the supplier promises to provide
2. The quality standard of the goods or services; the length of the contract
3. The payment terms
4. Indemnity, should there be loss arising from negligence
5. Repercussions should there be a breach of contract

Determination of payment terms is a must as this can affect the cash flow of both businesses. The ability to guarantee payment within shorter periods ensures that you get deal points. Additionally, delivery times and locations must be expressly agreed upon as miscommunications and delays can cause costly disruptions.   

Remember to choose a supplier who has a delivery model that works for you. You can select the Continuous Replenishment Model, where the supplier makes deliveries according to a predetermined agreement and schedule.

Alternatively, you can pick the Just In Time Delivery Model, where the company receives supplies as needed. Lastly, the On-Demand Delivery Model is where the supplier delivers goods when requested or demanded by the customer.

So, what is the future of sourcing in the post-Covid era?

Over the next decade, sourcing and procurement are likely to become an extensive part of most businesses. Experts hope that this will increase transparency, support the need for better risk avoidance, and guide companies through some of their biggest challenges.

Let’s dive into some of these challenges and see how they might shape the future of these processes. 

Risk Avoidance

The expectation is that procurement will start to move away from a narrow emphasis on compliance and begin to take on a more comprehensive perspective. Such a broad approach will force organizations to evaluate total risk exposure, risk transfer pricing, and investment in demonstrable risk mitigation.

To achieve these objectives, companies will have to rethink their strategies for supplier risk management. It will be necessary to adopt new metrics to streamline major sourcing and supply decisions. In turn, waste minimization and maximizing purchase value will be achieved. 

Sustainability

Avoid underestimating the impact of a rapidly changing market. In today’s business environment, millennials are a purchasing powerhouse. So, procurement functions will have to design supply chains that satisfy this customer base.

This process will likely involve strategies beyond basic cost-cutting measures as younger buyers are less fixated on price than previous generations and are more likely to prioritize sustainability and CSR over knockdown deals.

Globalization

Over the next few years, emerging markets will transform the supply and demand trends upon which we have come to depend. Hot spots to watch are China and South America, both of which are developing rapidly.

Experts are predicting that big businesses will start to construct expertise in this region and countries like Russia and India. There may be a need to hire remote “on location” managers across several emerging nations.

Sustainable Sourcing

For a brand ESG is the Landscape where PFM is the way to achieve the Goal for an organization/brand.

There are numerous reasons for businesses to prioritize environmental, social, and governance (ESG) concerns. They might need to fulfil their buyers, who are progressively picking brands’ areas of strength with certifications, regardless of whether the costs are higher. Alternatively, they might be trying to keep up with ever-more stringent regulations.

Sustainable Development Goal for the UK

The 2030 Agenda for Sustainable Development is a historic global agreement to eradicate extreme poverty, fight inequality and injustice, and leave no one behind. Agreed by world leaders at the UN in 2015, the 17 Sustainable Development Goals (SDGs) succeed the Millennium Development Goals (MDGs). The SDGs are universal with all signatories expected to contribute to them internationally and deliver them domestically.

The UK was at the forefront of negotiating the SDGs and will be at the forefront of delivering them. The UK lobbied hard to make sure the SDGs support the continuation of work undertaken through the MDGs.

The UK Government published a Voluntary National Review reporting on the UK’s progress so far in delivering the 17 Sustainable Development Goals in June 2019. This is due to be presented at the UN High-Level Political Forum in July 2019.

Below you can see some of the ways that the Government is supporting the delivery of the Sustainable Development Goals.

One of the platforms to help get the factory onboard and maintain score card.

The SMETA

The Supplier Ethical Data Exchange (Sedex) is a not-for-profit, membership organization that leads work with buyers and suppliers to deliver improvements in responsible and ethical business practices in global supply chains. 

SMETA (Sedex Members Ethical Trade Audit) is the audit procedure created by the Sedex membership which is a compilation of good practices in ethical audit techniques. SMETA audits can sometimes be incorrectly referred to as SMETA certification. Using SMETA, a supplier can have one audit conducted and share it with multiple customers, rather than having a different audit conducted for each customer. The SMETA documents are designed to be used by experienced auditors in line with current established practices.

Conduct a 4-pillar SMETA self-assessment based on industry best practices such as ISO 14001:2015, OHSAS 18001, and more.

Self-diagnose problems or areas within the supply chain that are prone to issues and correct them before the SMETA is conducted by second or third-party auditors.

Commission the SMETA and expect an announced, semi-announced, or unannounced audit at your site(s).

During the SMETA

Refer to the following measurement criteria used by auditors:

1. Environment
2. Management Systems and Training
3. Greenhouse Gas Emissions and Energy Usage
4. Air Emissions
5. Water Management
6. Waste Management
7. Packaging
8. Pollution Prevention
9. Other Raw Materials
10. Transportation
11. Social
12. Workplace Management
13. Health and Safety
14. Emergency Management
15. Forced Labor
16. Child Labor and Young Workers
17. Discrimination
18. Freedom of Association and Collective Bargaining
19. Harassment and Abuse
20. Compensation
21. Hours of Work
22. Governance
23. Accountability
24. Grievance and Remediation
25. Supplier Management
26. Stakeholder Engagement

After the SMETA

Review the SMETA report for recorded non-compliances (e.g. failing to meet local and national regulatory requirements), raised observations (e.g. no system in place to monitor performance), and good examples or exceptionally good performance of the four key pillars.

Implement the corrective action plan and validate its effectiveness.

Perform SMETAs annually or biennially to continuously optimize your supply chain and improve your demonstration of responsible business practices.