Traditional Sourcing vs. Smart Sourcing: New Systems And Strategies
October 28th, 2021
The world of international trade is changing day by day. A lot of these changes happened after the Covid19 pandemic, due to which the whole world supply chain was disrupted.
Keeping this in mind, many organizations started to transform their product sourcing strategies as well as digitalize their whole supply chain.
To keep up with the challenges of the industry, traditional sourcing is no longer workable. The old methods of waiting for customer’s inquiries, then finding their products, manual communication through messages or emails.
The need to recruit employees just to provide updates to the clients and shipping products with no automated tracking systems, such a way cannot provide solutions to future challenges and incur extra costs for the companies.
This blog is an Original EJET creation, where we will talk about how the world is moving from Traditional to Smart Sourcing and how companies are implementing new systems and strategies within the organization to better serve our customers and be the leading brand in International Trade.
Chapter 1: Future of Product Sourcing – Traditional or Smart?
1. What is Traditional Sourcing
The traditional sourcing has been practiced by many companies through many years. Traditional sourcing means that when you want to import any products from China.
The sourcing company gets customer’s inquiry, then either visits wholesale markets or visit factories to find products needed, inspect them and then make shipping arrangements.
However, all of these steps are done manually and customers are updated either through emails or messages. There is very less use of technology and the whole process goes in the straight line.
This makes the whole process very long and does not provided any detail analysis for the companies to understand which part of the process is creating the issue in the complete supply chain.
It also means that decisions will be inaccurate and will take long time to be made.
However, now the whole world is changing towards smart sourcing because that is the need of the hour and the companies who will not implement these changes will be left behind and cannot compete with the future challenges.
2. What is Smart/Strategic Sourcing
Whenever there is use of technology, software, IT systems to manage the whole supply chain digitally, we will call that process as Smart Sourcing.
Nowadays, more and more companies are moving towards smart sourcing, because it is provided a lot of benefits to them.
Companies are using data driven technologies to make better decisions, understand the complete supply chain more deeply in order to make accurate adjustments to save costs and times.
A lot of companies are now also providing readymade software that companies can use to digitalize their whole supply chain.
It is also helps in making smarter business decisions and provides one window analysis where you can see each and every update regarding your sourcing process.
You can see all the details of the customer orders, suppliers management, order processing, order production, inspection analysis and reports, shipping information and tracking as well as processes related to after sales services.
3. Why Smart Sourcing is the Need of the Future
Because of all the advancement in the technologies, smart sourcing is the need of the future. If as a product sourcing companies, if you use the same old way, you will not be able to compete in today’s world.
Businesses need to make more smarter, accurate and quick decisions in order to progress. This ensures lowering the costs and increasing profitability.
It is very difficult to provide cheaper prices because of the competition. Especially after the launch of websites like Alibaba, 1688.com, Taobao, JD.com, Made in China, etc., it is very hard to keep high margins in a product in order to sustain a business.
Consumers are becoming more and more aware of the sourcing process from China and are able to connect with factories directly and negotiating the best price from them.
Therefore the best way for sourcing and trading companies is to lower down their costs of the process they are using, which increase their efficiency and profitability.
4. Is Traditional Sourcing Outdated
The simple answer would be yes, because traditional sourcing practices will no longer work in today’s cut throat competition.
The consumers are becoming more and more demanding, the supply chain disruption caused by covid19 also have made it very challenging for companies to manage supply chain.
If you are using the traditional sourcing, you cannot be efficient and make quick decisions, which means the business model will not sustain for long.
Nowadays, decisions have to be made by the minute, because the world is changing rapidly. The geo politics in the region, the trade wars, the currency exchange rates, natural disasters, and Covid19 pandemic.
All of these are the main reason for companies to install technologies into their systems and digitalize the whole supply chain to have better control and monitoring over the whole process. This is why traditional sourcing will no longer work.
5. What is Digital Procurement? Is it same as Smart Sourcing?
Digital procurement is the application of disruptive technologies that enable Strategic Sourcing (S2C) to become predictive. The process becomes more automated and Supplier Risk Management becomes proactive.
Hence Digital Procurement is the same as Smart Sourcing as Digitalization of the Procurement Process is part of Smart Sourcing.
6. Traditional Sourcing vs Smart Sourcing – A Comparison
Every step is done using manual ways which takes long time. Depending heavily of paper works, excel sheets, phone calls and in-person conversations.
All the steps are digitalized and automated. It is fast and efficient and use electronic software and systems.
Do not use big data to analyze situations and make quality business decisions.
Use big data and perform data analytics to make efficient business decisions.
Does not use automated systems and digitalization hence every process takes longer time and have more chances of mistakes.
Use automated systems and the whole supply chain is digitalized which enables companies for faster response times and less failures.
The goal here is simply to source goods at the right quantity and at the right price. That’s all
The goal is here to provide not only sourcing but also data analytics, study customer trends and product suggestions based on customer’s business models.
Traditional sourcing handicaps a company’s operations and potential for financial success.
Smart sourcing enables companies to have better operations and increase the potential for company’s financial success.
Relies on time-consuming and tedious, repetitive tasks that failed to generate significant savings or profits
It is not time consuming and helps to perform tasks efficiently saving time, costs and increases profits.
It is not suitable for a company to sustain in long run and scale to a Billion dollar company.
Helps companies to sustain and scale in the long run.
Chapter 2: How Smart Sourcing can Transform the Whole Supply Chain – Benefits
There are many benefits of having smart sourcing incorporated into your business. Let us understand them one by one and see how Smart Sourcing should be used by every Sourcing company in China.
1. Helps in Significant Cost Cuts, Increasing Profitability
Companies can streamline their operations with a digital platform that focuses on accuracy and error prevention.
The more control you have over the whole process and fewer errors you make means less money spent cleaning up after costly problems which increases profitability.
The digital supply chain also helps you manage the whole process very efficiently without wastage of time in long processes which again results in saving costs.
2. Better and Accurate Decision Making
Smart sourcing provides you data and information in a very efficient manner which is easy to understand and helps executives make very accurate smart decisions.
Businesses are all about making smart and quality decisions to reach success and smart sourcing helps you do that. It gives users actionable insights into their sourcing processes.
Not only that, but forecasting tools can also provide roadmap for fluctuating demand and provide the possible routes to take for the greatest gains.
3. Improves Agility of the Business
If your business is still working with analog record keeping practices, it can be very time consuming.
A process that has fully adopted a digital transformation can make changes in the system that will immediately be distributed to all important areas of the whole process and helps is a more agile supply chain which is responsive to any fluctuations and changes happening in the international trade.
4. Removal of Tedious Tasks – Procurement Software
Using of procurement software can automate the whole process and can cut down on many tedious processes employees have to go through on a daily basis.
There are many ready to use procurement software in the market which can be customized according to your business needs and it provides must simpler management systems.
Here we are sharing list of some famous and widely use procurement software worldwide.
Sourcing and Procurement professional are able to get so much more work done by simply transitioning from a manual approach to an electronic one that utilizes procurement software and automate processes.
Manual approach will mean going through a lot of paper work, excel sheets and phone calls whereas moving to smart sourcing or e-procurement platform.
All the processes becomes automated and operations are sped up with much faster processing, hence saving time and cost.
6. Increase in Visibility and Transparency
In traditional sourcing system, it is very difficult to track and manage spend behavior and patterns of the customers without a clear, streamlined view of operations and transactions. Companies are not able to realize significant value or savings.
With the implementation of smart sourcing, the overall visibility and transparency of Supply Chain process are boosted, which provides sourcing professional greater insight into spend behavior and control of the whole process.
This data is then aggregated, filtered and classified, increasing spends visibility and allowing improved spends analysis.
7. Enabling Focus on Strategic Work
Smart Sourcing reduces time wastage on processes that does not matter or are of less importance. You are able to fully understand which part of the business is creating problems for the whole supply chain and are accurately able to solve them.
By channeling the efforts into more strategic work, sourcing companies can greatly impact the overall value they can bring to their clients. This means more quality decisions are taken when companies use smart sourcing.
Chapter 3: How Companies are using Smart Sourcing to Innovate and Digitalize Supply Chain
1. Digitalizing the Whole Supply Chain.
With the help of Digitalization, many companies are using software and IT systems to manage their supply chain, the enables the chain to become a completely integrated ecosystem that is fully transparent to all the players involved.
From suppliers of the raw material, components and parts, to the factory production, inspection and to the transporters of those supplies and finished goods, and finally to the customers demanding fulfillment, digital supply chain enable everyone to take more smart decisions.
2. Smart Solutions like Product Platform and Online Stores
Companies are creating their own product platforms from where customers can choose the products they want to source and place online inquiries.
Think of it as an online store but rather than for the retail purposes it is used for wholesale purposes.
An online product platform is very important for Smart Sourcing because that is where the whole process starts.
The buyer should be provided with a system from where they can choose products easily, comparing them with different offers, making analysis with the information provided and finally selecting and ordering the products.
3. State of the Art Customer Relationship Management System or Enterprise Resource Planning Systems.
Companies are creating CRM and ERP systems which is not only digitalizing the supply chain but the entire process of how the company operates.
That includes not only sourcing and supply chain process but also marketing, human resources, finance, budgeting, spend analysis, cost savings, etc.
This all helps companies to understand and monitor each and every step very efficiently and it also enables them to understand which part of the process needs tweaking and improvements.
4. Cost Cutting Strategies and Tools helping Clients to make Efficient Decisions.
In today’s ecommerce businesses, competition is very high and sourcing high quality products on cheaper prices is very difficult.
Therefore, another way to increase your profits in to use the cost cutting strategies and tools and making the whole process more efficient from sourcing of the products from suppliers till the delivery of the products so that each step is done by incurring low costs so that the overall margins are increased.
Chapter 4: Covid19 – The Tipping Point for Transformation and What’s Next?
In this chapter we will discuss briefly how Supply Chain was disrupted during the pandemic and how smart sourcing is the need for every company to make timely decisions during these crucial times.
1. How Covid19 Impacted the International Trade
Covid19 has disrupted the whole supply chain. Ever since the pandemic happened, many borders were closed by various countries.
This resulted in container shortages, high shipping prices, and high prices of raw materials which totally changed the whole supply chain process.
Companies started thinking about transforming their business models and adjusting them according to the post pandemic world to cope up with the challenges.
2. Other Major Events which Disrupt Global Supply Chain
As if the Covid19 pandemic was not enough to shook the whole world and create challenges for Global Supply Chain.
There were also other incidents in 2020 and 2021 which created further disruptions, which also forced companies to transform their processes and use automation to enhance their ability to make analysis and decisions and get more detailed information on the whole process.
Let’s see some of these events and understand what happened.
Suez Canal Event
On March 2021, the Suez Canal was blocked for 6 days after the grounding of Ever Given, one of the largest ships in the world and carries 20,000 TEUs.
The 400m long vessel was impacted by the strong winds and ended up wedged across the waterway with its bow and stern stuck in the canal.
This resulted in blockage of the traffic. This caused around 369 ships to queue up and it caused a loss of US$9.6 billion worth of trade. This impacted the whole supply chain of the world.
Ningbo City Port Closure due to Outbreak
Due to positive cases of Covid19, a major container terminal in China’s Ningbo-Zhoushan Port remained shut for a week and operations were suspended.
This results in dozens of ships lining up to load cargo for western markets ahead of the year-end shopping season.
The cascading effect of this also lead to crowding at ports along the Asia to Europe trade routes and created a global supply chain disruption. Giant retailers like Walmart Inc and Amazon were also heavy impacted due to late deliveries and higher transport costs.
About 10% of the global container capacity is stacked on ships stuck outside congested ports (Vespucci Maritime CEO Lars Jensen)
3. Container Shortages and Increased Shipping Prices
A news report of UNCTAD mentions the various reasons of why container freight rates surged during Covid19.
The container shortages, borders closures by various countries, lack of investors’ interest were some of the reasons during the pandemic which caused shipping prices to increase.
Because of the uncertainty of the future, no one wanted to import more and more products when they are unaware of when things will go back to normal.
This resulted in fear of investing and importing products. Overall shipping rates increased so much that a container that used to ship for 2000$ was being shipped for 10,000$. Prices went 5 folds for some regions.
China Electricity Crisis
In September 2021, many factories in China were informed to reduce their production hours and they will be provided electricity for a specific time period. This resulted in cutting the production of many factories by up to 50% which resulted in increase in price of raw materials.
The need for power has skyrocketed on the back of China’s economic recovery. In the first half of 2021, the demand for energy exceeded pre-pandemic levels, according to China’s National Energy Administration.
With colder months looming, matters are only getting worse. This has also impacted the supply chain hence companies need smart sourcing to make flexible decisions according to the current scenario.
Smart Sourcing, The Need of the Hour.
As we have talked before that without implement smart sourcing and smart strategies in today’s sourcing businesses or import export business, companies cannot sustain much longer.
All the issues and challenges mentioned above in this blog, shows that companies need to transform themselves and no longer traditional sourcing can be used.
Companies can still be able to work and earn profits through traditional ways of sourcing, but in the long run it will be very challenging and they will be out beaten by competitions who are transforming or have transformed their business model.
The procurement officers and sourcing companies need to rethink the value added by a sourcing company for their clients. Customers need complete solutions under one roof with minimal investments.
With new opportunities provided by the digitalization and big data, the entire supply chain is becoming more robust and efficient. Companies need to transfer this value proposition to the buyers in order to sustain.
Companies can also use their valuable customer data to better manage transportation flows, inventories, warehouse requirements, quality inspections, and other parts of the supply chain.
2. Digital category and service procurement
The requirements from sourcing companies are also changing due to new technologies. One of the requirements will be capturing, analyzing and acting on real-time data.
Additionally, in the future, people, objects and systems will be increasingly connected through data communications, transforming value chains into larger “value networks”. Not only the buyers will change in what they buy but they will also change they ways in which they buy and the sourcing companies need to adapt to this change.
3. Digital supply chain and supplier management
Many sourcing companies are now having the ability to integrate all of the data from customers, distributors, suppliers in real time to optimize supply chain performance.
This also helps in reducing lead times and freight and inventory costs while improving the customer experience and even supplier performance. Every company in the future will have a digital supply chain and automated supplier management systems.
Innovative procurement data utilization
The future will enable companies to use data analytics which is probably the most important enabler for sourcing companies. Smart technologies and algorithms allow very large volumes of data from many heterogeneous sources to be aggregated, processed, and analyzed.
Such analyses can be used to understand suppliers, markets, and customers, predict market trends and look into failures in the whole supply chain.
Digital processes and tools
Digital technologies will help sourcing and trading companies to increase collaboration, analytics and engagement using digital tools along the entire procurement value chain, from planning and sourcing to contract negotiations, order delivery, payment and supplier management.
This means that all the processes in the companies will become digital. Digital procurement processes include digital requests for quotations, supplier financial analysis, procurement risk analysis, e-signatures and verification, and digital procurement network collaboration.
Organization and capabilities
Organizations have to increase their capability in every way, from having the best human resource, to implementing latest technologies and using digital solutions.
The large companies should consider establishing their own procurement academies to conduct trainings, seminars, webinars, cross functional training and supplier workshops. It is also very important for sourcing companies to establish exclusive relations with suppliers to provide better services to their clients.
Chapter 6: FAQs about Smart Sourcing and Traditional Sourcing
1. Is Smart Sourcing the key to Smart Manufacturing?
Yes, because smart sourcing can help in monitoring each and every process of sourcing raw materials, making calculated decisions based on data and using automated process to analyze situations.
This results in smart manufacturing where companies can produce goods at an economical pricing and optimum production levels.
2. Why do we need smart sourcing?
To remain competitive, companies must apply information intelligently, using it not only to optimize business processes, but also to enhance the customer experience.
This can be achieved through smart sourcing where companies use technologies and data to make advanced decisions and help customers stay up to date throughout the process.
3. What is Digital Procurement or E-Procurement?
Digital procurement is the application of disruptive technologies that enable Strategic Sourcing (S2C) to become predictive, Transactional Procurement (P2P) to become automated, and Supplier Risk Management (SRM) to become proactive.
Digital procurement is a powerful tool that not only provides information but also helps reduce the chances of errors in the information.
4. Is Smart Sourcing the answer to Disruption caused by Covid19 Pandemic?
According to an article published by World Economic Forum:
The pandemic has delivered both supply and demand shocks to global supply chains;
COVID-19 has highlighted outdated processes and introduced new consumer trends. Many supply chains are likely to be forever changed by the pandemic;
Risk managers need to assess their resilience against future shocks and adapt strategies for the post-pandemic world.
Seeing such changes due to pandemic, companies must use smart sourcing to enable themselves for future challenges.
As a conclusion we can say that smart sourcing is indeed the need for the future challenges and companies need to transform the way they are doing business to sustain longer and build a strong supply chain.
If more and more companies are able to use smart sourcing and digitalize their wholbLe supply chain, this will be better for the whole world as global supply chain will become more efficient which will be beneficial for the global economy.
Digitalization will increase globalization and speed up communications in an ever more closely connected world.