Different Sourcing Strategies for Small and Large Retailers

Date: April 14, 2015

Different Sourcing Strategies for Small and Large Retailers

How to Adjust Sourcing Strategies According to Your Size of Business

Leading companies, large and small, are not strangers to the idea of sourcing their products to ensure the most cost effective result. So it is crucial to plan carefully for the type of sourcing that will be done. From the type of sourcing they will invest in to the manufacturing location, no detail of the sourcing process should be left unchecked. However, different sourcing strategies for small and large retailers arise when examining the unique challenges faced by the two groups. Smaller companies need to take extra precaution to avoid higher risks in sourcing situations, while larger businesses must choose their suppliers carefully as it is not possible to make changes during production. How can sourcing strategies benefit each type of company?

For small businesses that may be undercapitalized, risk assessment is an important concern when it comes to product sourcing. Although the advantage of running a small business is the flexibility it provides when it comes to quick adaptation and reaction to the ever-changing demands of the market, small businesses also must be wary of the risks that accompany rapid changes in product sourcing as they simply cannot bear the financial burdens should something go awry somewhere along the supply chain. Sourcing for small business owners should always include clearly communicated contracts with their suppliers to minimize any risk or loss, as well as a detailed outline of the timeline in which products need to be ordered, manufactured, packaged, shipped, and received.

For larger businesses, sourcing internationally has been a long-favored sourcing strategy. Designating manufacturing in bulk for a lower price abroad rather than at home has significantly improved profit margins. Unfortunately, buying in large quantities can lead to a host of supply-chain problems, such as product overstocking. Another problem that can arise is the risk of supplier error or misconduct. If the supplier cannot provide products in a timely manner or to a good quality, the larger businesses that have relied on the larger product orders may be left floundering with reduced sales and empty warehouses. Therefore one should ensure there are certain guarantees in the work agreement that address both the product quality and delivery times. Monitoring the progress of the supplier is also important in order to ensure bulk orders are completed and received as expected. This would also enable any contingency plans to be executed in the event that the supplier could not meet the production schedule during the regular progress checks.

Although it seems logical and cost-effective for both small and big businesses to source products from a select set of sources, there are some difficulties that could arise for both parties if they choose to stick with just one or two suppliers.

In the event of a natural disaster or financial crisis, small businesses only investing in one sourcing partner would severely suffer if production was shut down, even temporarily. Big business may run into problems with customer loyalty or face a public-relations emergency if they are suddenly no longer able to provide their products or services to their customers. It is for this very reason that all businesses should have a back-up sourcing plan in place for such emergencies. 

Best Sourcing Strategy to Mitigate Sourcing Risks 

Planning for more diverse sourcing methods should be a key factor for senior management and the best overall solution for both types of business, large and small, would be to “bundle” their sourcing strategies. Investing in multiple kinds of sourcing deals and putting into place a contingency plan would help alleviate the risk factor for small businesses and give a human touch to big businesses. 

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