The first step in the process of sourcing is to identifying the sources of supply. It needs to be decided at this time, whether the product will be sourced from the domestic market or from the international market.
Domestic sources of supply may be located by visiting central markets, trade shows or expositions. Usually, each city has its own central market where a large number of key suppliers are located. A visit to such a location enables the buyer to understand the trends in the market and to evaluate the new resources and merchandise offerings. Trade shows and expositions are also a good ground for finding new sources of supply.
The growth of the retail trade in India and the need among the Indian retailers to source products effectively for their stores have led to many retail chains reaching out to farmers and even investing in concepts like contract framing .
In addition to buying from the domestic market, an organization may seek out foreign sources from where merchandise can be purchased or made. This is a common trend in the West where trade barriers are considerably lower. As retailers today, operate in a global marketplace, the sourcing of products internationally is also a reality.
The prime reasons for looking at international sourcing could be the uniqueness of the merchandise, or the unavailability of the merchandise in the domestic market. In that case, a retailer may also source from a foreign market simply because the merchandise is unique and the fact customers are always looking for a unique product. On the other hand, low cost and good quality are also factors which could affect this decision.
A decision that is closely associated with branding decisions is to determine where the merchandise would be made. Although retailers buying manufacturer’s brands usually aren’t responsible for determining where the merchandise is made, a product’s country of origin is often use as a signal of quality.
Cost associated with global include:
1) Country of Origin effects: Many a times, where the merchandise has been manufactured makes a difference in the final sale of the product.
2) Foreign Currency Fluctuations: Fluctuations in the international currency rates will affect the buying price of the products. At times, due to violent fluctuations in the price, sourcing products internationally may suddenly become viable or unviable.
3) Tariffs: Also known as duties, it is a list of taxes placed by a government on imports. Import tariffs shield domestic manufacturers from foreign competition and raise money for the government. GATT & MBA affect matters.
4) Foreign Trade Zones: These are special areas within a country that can be used for warehousing, packaging, inspection, labeling, exhibition assembly, fabrication or transhipment of imports without being subject to that country’s tariffs.
5) Cost of Carrying Inventory: Purchase of goods is always at a price. Depending on when this merchandise is finally sold makes a very big difference on the varying costs.
6) Transportation Costs: While sourcing products internationally it is essential; to keep in mind the cost that will be involved in transporting the goods to the various markets that the retailer operates in. This is a cost that has to be added to the cost of goods and eventually, affects the margins that can be earned.
As a retailer, the process of sourcing needs to focus on the consumer, who has certain expectations – a product, a particular price, , a time limit and a certain quality. The push system of supply is outdated – customers have greater easier access to a much wider choice of goods and services, and expect ever greater standards of quality and customization. The sourcing and supply process must change to. Previously one end of the supply chain understood consumer demand and translated that understanding into a product concept that was manufactured, shipped and sold to the consumer through retail stores. Increasingly now the functions of Design development (production). Distribution and Display (retail) must link together to share skills. Knowledge and capabilities that allow joint market analysis, product development, common measurement and accurate forecasting can create a delighted rather than merely satisfied customer.
Too often, sourcing decisions are made as a reaction to the immediate present and the recent past. Factors such as past relationships past experience of individual buyers, gut feel and immediate price comparisons are commonly the driving forces. These are all internally focus; the decisions are based on what is available within the business (and it supply base) rather than what the consumer wants.
Common methods of gathering information about new suppliers would include talking to salesperson, going through trade magazines and yellow pages, and visiting trade exhibitions. The sourcing method would vary for different kind of products. Most products may require buyers to contact manufacturers or suppliers. However, products like books may require the buyer to coordinate with publishing houses or their agents.