Table of Contents
If the raw material is not sourced at the right time and of the right quality, the production process may come to standstill. It will further impact manufacturing and delivery timelines affecting the overall business. Hence, for smoother manufacturing operations, it is necessary to build the right raw material sourcing strategy.
The raw material sourcing strategy should be such that it does not pile up in the factory/warehouse at the same time, the required quantity should be always available when needed. This article explains what raw material strategy is, steps to formulate an effective strategy and tips for making a procurement strategy.
What is a raw material procurement strategy?
Many big organisations adopt a raw material sourcing strategy as a long-term plan laid out to source materials from various vendors. It gives a clear vision to the procurement team on do’s and don’ts during the procurement process.
Many MSMEs and startups do not have an established procurement strategy. This may create hurdles in shortlisting vendors, getting raw materials at affordable price, etc. This further leads to irregular supply of raw material, which has an impact on manufacturing and adds to the production cost.
The strategies mentioned below can help you bring efficiency in the procurement process.
How to source raw material: Effective material sourcing process
- Analyse your business needs: You need to analyse and understand your business needs. Determine the quantity and expected quality of raw material for your business. This will help you to shortlist vendors.
- Analyse the cost, quality and market: Analyse various grades/qualities available in the market, latest developments, etc. Understand the market for the particular material, pricing trends, availability, etc. For instance, if you want to source TMT bars for your project, it is recommended to understand steel TMT bars pricing trends in order to purchase right.
- Approach multiple vendors: Approach multiple vendors and compare the cost of the raw material you plan to procure. Many companies have the policy of inviting quotes from at least three vendors before finalising on one. This is done to ensure right quality is procured at an affordable price. Alternatively, explore online buying options. At Tata nexarc Procurement for instance, you can buy steel online at the best prices and with credit options. You can find a wide range of steel products including TMT bars, coils, channels and angles, sheets from different manufacturers, and procure the right quantities at competitive prices.
- Verify capability of the supplier: Verify if the supplier has capability to support your business needs before establishing the contract. Many buyer companies take a plant tour of the supplier to ensure right manufacturing practices and quality check processes are followed.
- Negotiations: This is a critical step. Negotiate with your suppliers to make the deal cost effective for you. Suppliers generally give discounts on bulk quantity orders, long term contracts, and so on. Additionally, pay attention towards payment terms and other terms and conditions too.
- Manage your suppliers: Any business requires consistency in supply of raw material. Hence, be in touch with your supplier regularly, hold meetings with them, give them feedback over quality, deliveries, etc. Also, gather information on tech innovations and advancement the supplier may have introduced. This will help you make your product better.
Tips for sourcing raw materials and procurement techniques
- Demand forecast: It is important to forecast demand ahead of time and accordingly intimate your supplier. While doing this, one cannot be vague. For example, as a purchase manager you need to intimate your supplier about the expected surge in demand, and inform him/her of the additional quantity of raw materials the company would need during this period. This will help the supplier to work in tandem with the buyer. Now a days technologies such as Artificial Intelligence (AI), etc., can help you predict demand accurately.
- Develop multiple sources: Although sourcing raw material from one supplier is cost effective, it is not a good idea to be solely dependent on one supplier. In case there is a shortage or any other challenge the supplier may be facing, it would hamper your production timelines too. Therefore, it is beneficial to work with 2-3trusted suppliers in parallel and have a process/workflow for procurement. This would also help you to compare suppliers on multiple factors (e.g., product quality, timelines, transportation costs, etc.) and extend contracts accordingly.
- Source locally whenever possible: It is always recommended to source locally if the required quality of raw material is available in the local market. This ensures the travel time is lesser which further reduces possibilities damages in transit and delays in logistics. Moreover, it creates employment and economic development in the local area, which is a value-add to your business.
- New ways of procurement: Apart from sourcing from traditional suppliers, you can also opt for sourcing from modern demand aggregation platforms. Tata nexarc’s Procurement allows MSMEs to source various products at reasonable price. You can easily send an enquiry with your requirement, evaluate quotes and choose the one that suits you the best.
- Role of technology: Role of technology in logistics and procurement is undisputed. It can bring ease to various activities such as demand prediction, inventory management, real-time monitoring, etc. Therefore, invest in a trustworthy digital solution for your business to manage procurement and entire supply chain efficiently.
Depending on the business size, you can implement suitable steps to improve your procurement. However, it is important to have a strategy in place so that you can source quality raw material at an affordable price.