What are some of the benefits of effective sourcing decisions?

What will be an ideal response?

Answer: Effective sourcing processes within a firm can improve profits for the firm and total supply chain surplus in a variety of ways. It is important that the drivers of improved profits be clearly identified when making sourcing decisions. Some of the benefits from effective sourcing decisions are the following:
• Better economies of scale can be achieved if orders within a firm are aggregated.
• More efficient procurement transactions can significantly reduce the overall cost of purchasing. This is most important for items where a large number of low-value transactions occur.
• Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. This factor is most important for supplier products that contribute a significant amount to product cost and value.
• Good procurement processes can facilitate coordination with the supplier and improve forecasting and planning. Better coordination lowers inventories and improves the matching of supply and demand.
• Appropriate supplier contracts can allow for the sharing of risk, resulting in higher profits for both the supplier and the buyer.
• Firms can achieve a lower purchase price by increasing competition through the use of auctions.