Why Relationships Are Key In Sourcing

by Alethia Tiang | Procurement-online

Global sourcing helps cut costs for purchasing and supply managers but it comes with its challenges, so how can the customer-supplier relationships help?

According to a qualitative case study of Ikea by research outfit Journal of Purchasing & Supply Management this year, the decision to adopt global sourcing practices is not always made by a single firm, but is influenced by other supply network players.

Based on its case study of the Swedish retailer, it found the global sourcing strategy of one company could significantly influence the sourcing strategies of suppliers, driving them to globalise their activities.

Ikea decided to open up its market to outside of Europe, sourcing mainly from Asia and North America to develop an integrated global sourcing strategy in these regions. Subsequently, its supplier Sapa Profiler AB, a specialist in aluminium profiles, also quickly began sourcing from other markets, leveraging Ikea’s knowledge and relationships in these markets.

With the current economic instability, more companies are under pressure to cut costs, forcing them to shift sourcing from local suppliers to low-cost country-based ones. However, global sourcing practices also come with many challenges which have often been underestimated.

However, suppliers who tap on their customers, the research shows, can reduce the complexities that come with global sourcing.

Ikea’s decision to develop global sourcing to cut costs and develop new customer markets was a major influence on the sourcing practice of Sapa. What’s more, when Sapa took the lead from Ikea, its own suppliers also did the same, expanding their reach to source in other markets.

Additionally, the research also pointed out the need for good working relationships between companies across supply networks to better understand and coordinate global sourcing decisions, instead of working within individual companies.

Suppliers will hence be able to capitalise on its customers’ influence in a larger network, aligning it with their own objectives while maintaining important customer-supplier relationships.