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Different sourcing concepts at a glance

The sourcing of goods and primary products for one's own production is one of the most important steps for a successful business model. Based on existing sourcing concepts, it is the task of management to develop the right strategy. Only customised procurement will ensure your company's future business success!

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For production in your company, the procurement of materials or pre-products is a challenge they face every day. Only if there is a smooth delivery process will there be no delays. Topics like "just in time" or "just in sequence" are crucial when looking for sourcing concepts for your company. The optimal supply management is based on the goals of your production and should be in line with your own corporate culture. But which procurement concept fits best for your business?
First of all, it is important to check your own starting position. In doing so, you should analyse which requirements your suppliers should fulfil in any case. This involves questions such as:
  • Who is able to deliver on time and reliably?

  • Who produces goods in the desired quality?

  • Who is cost-effective and efficient within my supply chain?

  • Are there legal risks?

  • Are there any customs restrictions with foreign suppliers?

  • Is the supply chain transparent and in line with sustainable production?

Once you have an answer to these questions, the next step is to select the appropriate sourcing concept.

What are the different sourcing concepts?

Every business has its own strategy for obtaining goods and inputs most advantageously. These different sourcing concepts have prevailed in the market:

  • Single sourcing

  • Dual Sourcing

  • Multiple Sourcing

  • Modular Sourcing

  • Global Sourcing

 

We would like to present the different sourcing concepts and highlight the respective advantages and disadvantages.

 

Single, dual, multiple sourcing - how many different suppliers does it need?

Each of the strategies listed offers you opportunities, but also involves risks for your business.

 

Single sourcing

With single sourcing, your goods procurement is concentrated on a single supplier. You have the advantages of a fixed ordering process with low ordering errors. Delivery is mostly automated and the administrative effort is kept within limits.

In addition to favourable transaction costs, you can negotiate a quantity discount for larger deliveries.

The disadvantage of the sourcing concept is the dependence on the supplier and the lack of competition. Diminishing innovative strength and risks in the event of a supplier's production failure are additional factors to consider.

Dual sourcing

With a second supplier you distribute the risks of your sourcing concept to an additional partner. The risks are similar to single sourcing. In the event of a supply shortage, the second supplier may be able to help out with increased production of their own.

Multiple Sourcing

Multiple sourcing offers the greatest flexibility in terms of favourable purchasing conditions in procurement.

In addition to independence from individual suppliers, this also means a lower risk in terms of supply bottlenecks.

With competition, you additionally benefit from product innovations within the sourcing concept. Disadvantages are possible high transport costs, lower discounts and a greater administrative effort for each order.

 

Modular sourcing - purchasing high quality from system suppliers

A special feature in the context of sourcing concepts is the modular sourcing of entire pre-assembled modules from individual suppliers. Here, reliance is placed on the core competence of individual suppliers who are closely integrated into your company's own production. For the buyer, the complexity of procurement is reduced because prefabricated components are supplied by a few specialists. A customer-specific supplier is able to deliver complete assemblies with a high degree of automation in the highest quality directly.

Electrical engineering as an example of high-quality sourcing concepts

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Coil manufacturing is one of the areas in electrical engineering where EMS service providers have great advantages. From development to the finished assembly, a supplier such as KUK Group is able to become your competent partner. Challenges from a technical point of view are thus delivered in an overall cost-effective solution for the customer in the best quality.

 

Global sourcing - developing the best sourcing concepts worldwide

To get the best price when sourcing, a global sourcing strategy is a good option. This means complete independence and offers you innovative solutions from the best suppliers in the world.

You should keep in mind geopolitical risks and consider language problems of different cultures.

Long distances mean high transport costs, which may also involve exchange rate risks. Global suppliers, for their part, have a network and are well acquainted with the challenges of worldwide procurement.

 
 

Is there an illustrative example of good sourcing concepts in electrical engineering?

For example, a flexible and innovative supplier with a global presence is the Swiss KUK Group. The company has technical know-how in relocating production and installing manufacturing lines abroad. This makes it possible to set up redundant production facilities abroad that are optimally coordinated with each other.

 

How to choose the right strategy

There is no such thing as a tailor-made solution for all companies in terms of suitable sourcing strategies. Every manufacturer has different requirements. For example, in sectors such as industry, automotive suppliers or medical technology, different life cycles apply to the purchased goods and primary products.

Flexible solutions hold great advantages for procurement concepts. It is crucial for your own company development if your supplier is able to accompany your company growth.

In the field of electrical engineering, for example, a coil manufacturer is of great benefit as a supplier if it can provide the complete service package as an EMS service provider. As part of the sourcing concept, additional assembly steps can be commissioned, saving valuable resources at the customer's end.

 

What forms of contract exist in the context of sourcing concepts?

Long-term supply relationships are usually regulated through framework agreements or call-off contracts. This reduces the workload and sets the overall purchasing conditions. Separate contracts are drawn up for individual transactions, depending on their type and scope. The basic contract types for this are divided into:

  • Purchase contract

  • Contract for work

  • Work supply contract

The legal provisions are laid down in the respective national law.

Choosing the right sourcing approach is as important as innovation in your products
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Don't stay with entrenched structures, but permanently develop your procurement strategy. In rapidly changing markets, an outdated sourcing concept can lead to disruptions in the supply chain and even to a standstill in your own production.

Conclusion

The procurement of preliminary products and building components has become an essential component for in-house production in times of innovative markets. Topics such as "just in time" or "just in sequence" are part of everyday life for modern manufacturing companies. This requires sourcing concepts at the highest level that are precisely tailored to the needs of your company. With solutions such as Single Sourcing, Dual Sourcing, Multiple Sourcing, Modular Sourcing or Global Sourcing, you are spoilt for choice. Depending on the requirements of your own production and the life cycle of the products, you will find the best solution among the models presented.

Much more than winding goods: This is what you can source from a single supplier