Ethical and Sustainable Sourcing Essay

There is a huge difference between purchasing and strategic sourcing. Purchasing is the process of acquiring goods and services. On the other hand, strategic sourcing as a company's way to make decisions related to supply chain management to enhance productivity and remain competitive. Ahmed (2016) articulates that the major difference between strategic sourcing and purchasing is sustaining the buyer-supplier relationship. According to the author, in purchasing businesses focus on the minimal cost per unit while in strategic sourcing the major focus of businesses is on the highest value and ownership costs. Also, the author indicates that purchasing is local while strategic sourcing is global. Besides that, to prevent failure, purchasing focuses on reactive approaches while strategic sourcing focuses on proactive approaches (Ahmed, 2016). Further, supplier performance in purchasing is effective while it is efficient in strategic sourcing. More so, the author affirms that in purchasing, businesses focus on what products they can buy from people while businesses who practice strategic sourcing focus on quality and compares different products before opting for a supplier. In essence, the author asserts that purchasing focuses on quantity while strategic sourcing focuses on quality. Lastly, the author affirms that in purchasing, the relationship is based on familiarity while strategic sourcing is based on concentrated sustainability.

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Ethical sourcing is the trading of activities ethically by ensuring the competitive edge is attained in a sustainable way. Sharma (2015) refers to ethical sourcing as a tool for finding new market opportunities that are beneficial to business. Firms need it because it promotes a healthy market environment. Also, ethical sourcing empowers companies to come up with reliable information on business behavior (Sharma, 2015). The author affirms that in ethical sourcing, businesses have to look at their manufacturing practices and their relationship with its suppliers. More so, the author indicates that the motive behind ethical sourcing is to allow companies to incorporate ethics into their processes to minimize the likelihood of negativity in the market environment.

One of the common practices of ethical sourcing is living wages payment. Sharma (2015) asserts that companies should ensure they pay employees their wages and discretionary income. Another practice is working hours where the author articulates that the working hours comply with the national legal requirements. Another practice, which the author mentions is raising awareness to staff involved in buying, specifying, and approving products to inform them of the firm's strategy, programs, and specifications. Furthermore, another practice is working with suppliers. Companies can do so by building projects with their suppliers while considering their working processes (Sharma, 2015). Besides, another common practice is building vendor relations where the author indicates that firms monitor the corporate social responsibility performance.

Early supplier involvement is a good way to integrate the supply chain because it enhances optimal value to the business by hastening its product development cycle. According to Hygenic (2014), businesses have to employ early supplier management during concept management to increase the effectiveness of the supply chain. In essence, early supplier management can help the business' supply chain by increasing quality and decreasing costs of materials and supplies. Early supplier management establishes and maintains a collaborative relationship and innovative trust that is mutually beneficial between two firms (Hygenic, 2014). The trust comes in when both the manufacturer and the suppliers share information regarding firm processes. Involving suppliers in the business dynamics early enough results in improved manufacturing processes and minimal repetition of product designs that eventually lead to a smaller developmental timeline. As Hygenic (2014) determines, when early supplier involvement is implemented properly, the entire process of the supply chain will be beneficial to the sourcing organization as well as the supplier. In essence, early engagement can result in positive collaborative associations in the future.

There are differences between vendor managed and co-managed inventories. Efficient Consumer Response (2015) affirms that the difference between the two depends on the place where responsibilities regarding replenishment lay. Vendor managed inventories are a business model where vendors of the product take full responsibility for maintaining an agreed inventory (Efficient Consumer Response, 2015). The author asserts that in vendor managed inventories, retailers define the dynamics of the product and allow vendors to make decisions. The author adds that some vendor managed inventories give manufacturers the opportunity to plan by giving them control over all their stores. According to the author, when suppliers place orders, they follow through and deliver as they are considered firm orders. It is advisable to do vendor managed inventories when buyers want to decide on replenishment fully. On the other hand, co-managed inventories are a model where customers are in charge of the inventories until they decide to give vendors their permission to take care of them (Efficient Consumer Response, 2015). It is advisable to do co-managed inventories when the buyer is not ready to give full control to the vendor. The author avers that in co-managed inventories, when the vendors place orders, it is considered as a suggestion and not a company's order until the customer eventually approves of the order. In fact, the author articulates that vendors create order proposals and wait for them to be approved by the buyer.

A second-tier supplier supplies products to a company that supplies those goods to the manufacture. Also, second-tier suppliers can supply directly to the manufacturer. In that case, if I had a firm, which had 500 suppliers and they each had 100 suppliers, the number of second-tier suppliers that my firm would have would be 50,000 second tier suppliers. The 100 suppliers are the first-tier suppliers. Second tier suppliers are developed when these first tiers develop a relationship on their own. So, the number of second tier suppliers is 50,000 because when first tiers suppliers develop a relationship with a company's main suppliers, the number multiplies making the other suppliers second tiers. In the case where my firm reduced its supply base to twenty, its second tier suppliers would be 2000 second tiers. Similarly, if the supply base only had 20 suppliers and each had 100 suppliers, the numbers would multiply and make the figures of second-tier suppliers to 2000.

My firm would want to use an e-procurement system when it does not have a better cost management. Mahdillow & Akbary (2014) indicate that e-procurement systems enable a firm to manage their balance sheets by providing a list of products that are purchased, processed, and paid. Besides that, my firm would need the system when they begin to experience high cost in their processes. E-procurement systems can eliminate errors that are associated with the quality and efficacy of their supply system (Mahdillow & Akbary, 2014). Also, the firm would need the system when they need to boost their productivity. Since it saves time used for processing and handling transactions, using an e-procurement system would help a firm boost productivity by using the time saved to practice ethical sourcing and building their relationship with suppliers. Furthermore, the firm would want to use the system when it needs to develop a trading community. According to the author, the trading community would allow buyers to join in and enjoy the benefits in the businesses' supply chains.

Conclusion

The company I work for rewards and punish its suppliers in various ways. Regarding rewards, the company promises loyalty to the supplier if they deliver on a satisfactory level. More so, another reward is to pay them one week after supplying goods to ensure that they continue with the supply operations. Also, monthly, if suppliers deliver products on time consistently without delay, they are given a bonus of adding 1% to all products supplied. Another incentive is promising the supplier a long-term relationship. Concerning punishment, the company punishes suppliers by imposing a fine on them on late deliveries. Usually, suppliers are fined a fee of 3% on the entire products that they have supplied. From my perspective, the methods they use are appropriate. The reason is that they enhance a better supply chain operation, which eventually increases revenue for the business. Actually, the rewards and punishment promote a healthy and trustworthy relationship between suppliers and the firm. As noted, the incentives given to suppliers outweigh the punishments. The reason my company provides better incentives for their supplier is that it makes them stick with the company and renew their contract every year.

References

Ahmed, M. (2016). Strategic Sourcing Vs. Purchasing - 7 Key Differences. Muddassisism. Retrieved from http://muddassirism.com/strategic-sourcing-vs-purchasing-7-key-differences/

Efficient Consumer Response (2015). Best Practice in Implementing VMI. Retrieved from http://www.ecr-baltic.org/f/2015/20150308_BestPracticeVMI_029_3.pdf

Hygenic. (2014). The Benefits of Early Supplier Management. Retrieved from http://www.hygenic.com/news/the-benefits-of-early-supplier-engagement.html

Mahdillow, H., & Akbary, J. (2014). E-procurement adoption, its benefits and costs. Retrieved from http://bada.hb.se/bitstream/2320/14364/1/Mahdillou%20Akbary.pdf

Sharma, U. (2015). Ethical Sourcing. International Journal of Applied Research, 1(11): 438-440.