Like many aspects of retail, the world of sourcing has changed dramatically in recent years and continues to evolve. Understanding these changes is key for retailers and brands to be able to continue to compete in the global sourcing economy. In this first of a two-part series, Daymon’s Chief Sourcing and Trading Officer Vipon Kumar explains how and why global sourcing models have changed—and gives us a glimpse of the opportunities the future may hold.
“Traditional modern-day sourcing models were built starting in 1978 with Porter’s Five Forces analysis and continued through the transformations in 1980s to 2000s with Kraljic’s risk-reward matrix and AT Kearney’s Chessboard models. All of these models were mostly adversarial between the buyers and the suppliers. It was a zero-sum game,” explains Kumar.
“However, it worked largely for buyers and for the suppliers who could learn to adjust their processes and wring out manufacturing costs to supplement their profits,” he continues. “Lean production models like the Six Sigma and Kanban practices helped the industry to continue the streams of cost savings. But now, those original sourcing models, process improvement practices and efficient supply chain strategies have collectively hit the low point of marginal utility.”
In Kumar’s view, a confluence of events following the global financial crisis of 2008 have had a positive impact for sourcing to become a major factor in an organization’s profitability. These include:
- the financial crisis’ test of partnerships between the suppliers and the buyers
- industry consolidation in the years following the crisis, which forced both suppliers and buyers to work together as co-creators of products and their corresponding value chains
- the strong U.S. dollar and the deflation of commodity markets, which provided massive opportunities to manage cost structures and production capacities
- the elevation of the Chief Sourcing Officer’s role from the back office to front line operator
- Millennials’ predisposition to recognize the social impact of their consumption patterns.
“The collective force of these events has set the stage for the evolution of sourcing in 21st century,” says Kumar. “This evolution is built on the premise that sourcing has no destination but is instead a continuous journey. The new model of sourcing will be a continuous feedback loop comprising of metrics jointly developed by sourcing managers and buying managers, who will together own responsibility of sourcing raw materials, production capacities, technology and the most efficient mode of supply chain.”
Kumar points to furniture retailer and brand IKEA as a pioneer in 21st century sourcing. “IKEA takes a very holistic view of its sourcing. In my view, IKEA sells only what it can efficiently source. Its strategy includes long-term planning of re-forestation (re-planting the trees) at the same time as its suppliers are harvesting the wood for its current products. This sustainable sourcing model is built around a resource re-generation loop—exemplifying the continuous nature of sourcing.”
Stay tuned next month to learn what’s on tap for field of sourcing and sourcing models over the next five years—a time Kumar says promises to be “completely transformative.”
To learn more about Daymon’s sourcing and supply chain services, contact Vipon Kumar, Chief Sourcing and Trading Officer, at vkumar@daymon.com.