The Perfect Order: Right Source

The third of Dr. Marien’s 8Rs of his Customer’s Bill of Rights is the Right Source. Per his original article, the Right Source was described as:

Sourcing policies by customers can be geographically based upon local, national and/or global sourcing depending upon the commodity. Customers are working with suppliers to help them determine the lowest total cost of ownership (TCO) when considering alternative supplier/sourcing locations. From a sourcing perspective, many suppliers have multiple plants, distribution centers and sourcing locations from which customers can work with suppliers in balancing-transportation outbound and inbound lanes as well as facilitating continuous-and consortium moves among collaborative buyers and sellers.

In some industries, "swaps of shipments" occur among competitors of similar commodities. What does this mean in today's environment? Sourcing location based upon closest distance may not be the lowest cost source. The right source as determined by buyer, seller and third-party logistics service providers (3PLs) must be a negotiated item of service.

To gain low-cost solutions, routing of orders for shipment is a transportation management system (TMS) function in which buyers, sellers and 3PLs must work together for mutual benefit and gain. Pre-shipment planning among supplier salespeople, customer buyers and operations planners under the guidance of logistics professionals will lead to the best TCO routing decisions.

A lot has changed in the world since Dr. Marien wrote his original article in 2005. The COVID-19 pandemic upset supply chains and made companies realize that JIT (just-in-time) was really just too late. Outsourcing overseas is probably too far away. Low cost seems to have a price to pay.

From one perspective, sourcing can mean contract manufacturing and distribution (fulfillment). I think that more companies today than in 2005 are using 3PLs (third-party logistics providers) rather than having their own warehouses. Certainly, more so today than in 2005, e-commerce is booming with deliveries direct to the home and specialty direct-to-consumer fulfillment companies populating the logistics provider landscape. To Dr. Marien’s point, sourcing should be from the “right source,” and this requires multiple factors to be considered, some of which may have been overlooked or less prioritized in the past.

Something that a company has to consider when thinking about the source is whether or not they can do it themselves: in-house versus outsourced. In other words, do you own it or do you contract for it? Sometimes it is not practical to own it, and that’s fine, especially if you don’t have the expertise in something or you just cannot financially afford to own it outright.

If outsourced, whether manufacturing or distribution, how far (distance) do you go? Whether it’s in-country or offshore depends upon raw material availability, manufacturing capability, and production costs. But you also have to consider transportation lead times and shipping costs and the risks associated. You may have to buy and hold a larger amount of inventory if you source from overseas. Can you reduce the transit time by sourcing offshore but at least on the same continent? What risks do you need to consider? Have you sole-sourced? Will inclement seasonal weather be a factor? Is your outsourced supplier in a geopolitically unstable location?

But one thing is for certain, and I’ve said this and written this multiple times before: Just because you’ve outsourced a process, it does not mean that you can outsource the responsibility. Vendors/sellers: you absolutely own the responsibility for the product and the ability to fulfill the orders from your customers (retailers, persons) no matter whether you own or contract manufacturing or distribution.

Selecting the Right Source means that you know your supply chain, because it is, after all, your supply chain. If you have to know your supplier’s suppliers, then do so. Your customers don’t want your excuses, they want your products, perfectly. Didn’t do your due diligence before you signed a contract manufacturer or distributor? That’s not your customer’s problem, that’s yours. Child or forced labor is unforgivable, and if your supply chain is somehow a participant, you’d better be aware before your customers—or regulatory enforcement agencies—are.

Geographic location is important not just from a global perspective, but also from a national viewpoint too. Selecting the right location(s) for distribution has an impact on supply chain vendor compliance: for the most part, retailers do not permit shipments to their West Coast distribution centers to be done from East Coast locations, and conversely, retailers do not permit shipments to their East Coast distribution centers from West Coast locations. With retailers paying the transportation costs, even at their discounted rates, cross-coast shipments incur too much time and money. Therefore, retail vendors shipping to retailer distribution centers likely need to have at least two sources of fulfillment if they are going to sell to a national retailer.

Another perspective on the Right Source is that of the retailer. The Right Source to a retailer means the right vendor: a vendor who is not a supply chain disruptor; a vendor who is in compliance technically and operationally; a vendor whose scores on its supply chain performance metrics are high; a vendor whose chargebacks are low. Consumer goods tend to be a commodity these days. Shoppers will buy what a retailer has, what a retailer promotes, and what is perceived to be a good value if the quality is believed to be good. If we, as shoppers, don’t know what we might have missed in a vendor that the retailer passed on or dropped, we are none the worse off really, especially if it is something that we want or need now, and the retailer can provide something similar. I think we are shopping less by brand loyalty rather than by features we want or need now, trusting that, even in a disposable economy, a known retailer will provide quality merchandise, or at least we know what we’re getting if we’re buying from a discounter.

With clarity of the third customer right, the Right Source, we can move on to the fourth customer right. Up next: The Right Destination.

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