Question

Sourcing selection strategy has a very important role in the supply chain and one of the most important point is Cost . Please write at least 3-5 paragraphs about Sourcing selection strategy and Cost, and how important is that for a business, and how it effect the business. Also, list some examples about some businesses.

Answer 1

Due to the impact of globalization, Supplier Chain Management (SCM) has gained more importance today. In the diverse market, a well-managed supply chain is pertinent in the competitive market. The most critical decisions for a SCM are the decision to buy products, materials or services from vendors. There are many sourcing selection strategies used by the management to select the most appropriate supplier. The most important among them is the cost criterion.

There are many sourcing selection criteria for SCM. The most important among them are communication capability (to relate what quality product is produced), flexible payment terms and ability to meet the delivery quantities as demanded by the manufacturing firm. Cost plays a critical role in all of these factors. The management who aims at souring the best supplier focuses on cost in all of these criteria.

Cost in SCM plays an important role in sourcing strategies. The main categories of costs are: search and information costs, bargaining cost and policing and enforcement costs. The organization trying to source the suitable vendor always seeks to optimize the cost of the sourcing product. The vendor who produces best quality products at a lower cost compared to that of the competitor always tops the list. There are many sourcing selection strategies such as cost ratio method, linear-averaging method, JIT (Just in Time), attitude on total acquisition cost, etc. All of these methods are based on cost since cost determines the revenue of a business.

A study has results that high-performing companies’ success is due to effective and well-managed supply chain which contributes to the growth of the revenue. Supply chain selection strategies are so important that it is considered as a standalone business operating function. The design of the supply chain and the cost in implementing them determines the success and failure of the business.

Additionally, supply chain service, performance and supply chain cost are determinants for the success of a business. All these criteria have cost as an important factor in their analysis. A classic example of effective supply chain management is IKEA and Amazon. IKEA uses more of automated machines in SCM. Amazon has its own logistics and warehouses for SCM.