Vendor sourcing is the process of vetting and selecting vendors to procure the goods and services a brand needs for their business—this can directly be the goods they sell or the raw materials required to build the products.
A strategic vendor sourcing process can be the difference you need to achieve your bottom line. It’s the first step in the supply chain and the most crucial one, because it plays a defining role in getting quality goods at a price point that gives businesses their desired margin.
Running a retail business—big or small—is more than creating a store aesthetic and selling products. It’s procuring high-quality goods from vendors you can rely on for years. But this requires building a seamless pipeline for vendor sourcing that can bring in consistent sales and keep product reliability high—even in the face of supply chain issues.
In this post, we’ll talk about the different aspects of vendor sourcing, draw a comparison between global and local vendor sourcing, and also talk about some best practices brands can use to set up an efficient system.
Table of Contents
What is vendor sourcing?
Vendor sourcing involves finding, vetting, and selecting vendors to provide the goods or services your business needs. As easy as it sounds, finding the right vendor to deliver the goods and match your price point, quality expectations, and reliability isn’t a piece of cake.
Vendor sourcing process
A mistake in the vendor sourcing process can be expensive and difficult to backtrack. However, brands can avoid it by streamlining this process.
Vendor sourcing includes:
- Organizational needs assessment
- Market research
- Finding quality vendors
- Testing for quality and setting standards
- Negotiating contract and payment terms
- Planning and demand forecasting
Organizational needs assessment
Before brands begin searching for vendors, they need to analyze each department’s needs by auditing existing resources. This also involves defining the existing costs plus additional costs they will incur to procure the required items.
Researching and analyzing the market is critical in understanding how the supply market works, what the competition looks like, and key suppliers.
Finding quality vendors
Once the needs and market are evaluated, the process moves on to finding quality vendors who can provide the goods and services.
Testing for quality and setting standards
After finding suppliers, the product quality is vetted and checked to ensure it complies with the brand’s quality standards.
Negotiating contract and payment terms
Upon checking the vendors’ background for reliability and product procurement, brands negotiate contract and payment terms to arrive at mutually agreeable price points and goods exchange terms.
Planning and forecasting for inventory
Once the supplier is decided, the next step is to finalize the delivery of the goods and services with annual and inventory forecasting.
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Overall, vendor sourcing is not a linear process. It varies with country, availability of resources, market changes, and the nature of business.
Sourcing vs. procurement
While sourcing and procurement are often used interchangeably, they don’t mean the same thing. Both are important to the supply chain management processes of a retail business, but understanding the difference between them is important to create separate and optimized systems for each.
But first, let’s understand what they mean.
What is procurement?
Procurement is the entire process of gathering the goods and services for a business. It’s the end-to-end process that involves planning purchases, placing orders, tracking the delivery, paying for orders, and handling inventory management.
A streamlined procurement strategy is important to avoid creating bottlenecks and delays in operation.
If companies don’t get their materials in time, the production can come to a halt, or if there’s an issue with the inventory management, they may miss out on sales during a holiday season or between supply chain issues.
What is sourcing?
Sourcing is a key phase within the procurement process and involves finding and vetting suppliers to purchase goods and services from them.
A strategic sourcing process ensures businesses get reliable, affordable, and high-quality products from vendors.
Sourcing lays the groundwork for effective procurement and involves:
- Finding suppliers
- Negotiating payment terms with them
- Establishing and maintaining a relationship
- Sourcing more products as the procurement needs change
Procurement is the process of getting the materials you need for your business, while sourcing is the process of finding and vetting vendors who’ll provide those materials.
The major difference is that sourcing is directly related to getting the goods and services because it involves a connection with the vendor. However, procurement is indirectly related to the materials because it deals with the other significant aspects, like managing payments and handling the material inventory.
Sourcing also manages the supply chain while setting up alternatives in the face of unavoidable issues, while procurement focuses on running the already existing supply chains smoothly.
Once the chain is set up, the sourcing team uses data to validate vendor relationships and analyze their performance over time to decide whether to continue or terminate the contract. The procurement team picks up from the foundation laid by the sourcing team to order goods, set delivery arrangements, and record inventory.
Sourcing and procurement are independent systems, but work together to get high-quality goods and services delivered on time.
Benefits of vendor sourcing
There are quite a few benefits retail businesses can enjoy with vendor sourcing. These benefits include:
- Cost management
- Mitigate risk
- Build consistency
- Gain efficiency with a systematic approach
- Align sourcing objectives with business objectives
Strategic sourcing is beneficial for both buyers and vendors. Buyers can negotiate rates with the vendors for high-volume purchasing and maintain their margin. Vendors enjoy a long-term collaboration with the buyers and get a consistent cash flow from one source.
Strategic sourcing works more on an idea of a relationship than a mere transaction with the vendor, which rewards in the form of trust, reliability, accountability, and open communication from both sides.
Suppose a buyer has a reliable vendor to supply regular high-quality goods and services. In that case, it takes away the risk of waking up the next morning and finding new vendors in the face of increased demand, like during holidays. In such cases, a dependable buyer-vendor relationship mitigates the risk of losing potential customers, especially as business requirements and compliance needs evolve.
Entering into a mutually beneficial partnership benefits both the vendor and buyer because any defects or supply chain issues can be dealt with at ease together. This helps keep the supply chain intact and avoid any delays in the operations.
Gain efficiency with a systematic approach
A strategic vendor sourcing process can make or break a brand’s supply chain efforts. Since the materials are unavailable in-house and need to be procured by an external contract vendor, an efficient system is required. Procurement software, Excel sheets, a dedicated team, and performance records can help build a repeatable and scalable procurement system that doesn’t break due to small cracks.
Align sourcing objectives with business objectives
Vendor sourcing involves needs analysis, market research, and vetting suppliers before procurement of products. It allows brands to align their business objectives—creating high-quality products, providing excellent customer experiences, or increasing sales—with sourcing objectives for better-optimized results.
Global vs. local vendor sourcing
One of the biggest questions when trying to find vendors who can provide high-quality materials for your business is where to do it—locally or globally. This debate of global vs. local has been going on for generations. Each option comes out with its own pros and cons.
Let’s look at some of them:
Global vendor sourcing
Global sourcing allows businesses to find vendors and procure goods and services from different countries in the world, rather than restricting themselves to their own locality. Let’s see some of its advantages and disadvantages:
- Access to a skilled global workforce at a cheaper cost
- Higher production capacity
- Excellent infrastructure and technology
Access to a skilled global workforce at a cheaper cost
If businesses want to source materials that aren’t readily available or manufactured by professionals in your country, global vendor sourcing gives access to geographical areas that specialize in producing those materials—often at a low price.
Countries like India, China, and Taiwan have low labor costs compared to the UK, US, and Europe. Coupled with skilled expertise, this helps businesses establish long-standing relationships and get the best quality materials for their products while cutting costs on labor and production.
Higher production capacity
Some countries like India and China invest heavily in manufacturing, so vendors have advanced technology and machines to produce materials en masse. This helps businesses get high-quality products at scale, thus giving greater access and saving on shipping costs.
Additionally, an increased production capacity helps meet increasing consumer demands and ensure businesses never go out of stock on high-selling products and services, thus helping them provide a great shopping experience to customers.
Excellent infrastructure and technology
Global vendor sourcing gives you the flexibility to collaborate with vendors in a country that has expertise specifically in the materials you require. For example, India is known for its spices and has the best-in-class infrastructure, technology, and experienced workers for its production.
Thus, businesses benefit from the best quality materials, assembling, and packaging.
- Additional local tariff and tax
- Higher transportation costs
- Language/cultural barriers
Additional local tariff and tax
While businesses decide to use global sourcing to save on production and labor costs, most are unaware of local tariffs and taxes on the production and export of goods in the sourcing destination. These vary with country and industry but can add up since the production happens at scale, which inevitably increases the expense saved on labor and manufacturing.
Besides, the currency rates keep changing, so inflation could considerably impact forecasted expenses.
Higher transportation costs
Global sourcing adds more links to a business’ supply chain, which leaves more space for errors, delays, and additional costs for transportation and shipping. Many countries have manufacturing plants in far-off locations where the land is cheaper.
So, the buyer doesn’t just incur shipping costs but also the cost for taking the goods to the dock, which can be expensive considering the nature of materials, plant location, and volume.
Add to that shipping costs and supply chain issues you can’t control from a different part of the world, and it can negatively impact your bottom line.
Communication gaps can cause delays, mishaps, and often costly mistakes just because things got lost in translation.
To carry out global sourcing efficiently, businesses need to understand the language and general code of the sourcing destination to form a relationship with the vendor, communicate the requirements, and maintain clarity while managing issues.
Local vendor sourcing
Local vendor sourcing is working with a vendor in your local market to procure materials for your business.
It pushes the economy forward and helps businesses keep the supply chain as close to home as possible. Let’s weigh the pros and cons here:
- Mitigate supply chain interruptions and costs
- Greater control and flexibility
- Launch products faster
- Reduced environmental impact and good for the economy
Mitigate supply chain interruptions and costs
Local vendor sourcing keeps supply chain costs at check because the logistics expenses are limited since goods travel locally.
Besides, since there are no shipping or warehousing costs, businesses can afford to spend more on sourcing quality goods and services than worrying about supply chain costs burning a hole in their pocket.
They can also solve supply chain interruptions like factory breakdowns, economic changes, and transportation issues locally. All of this saves considerable money, which retail brands can then re-invest in their processes or use to increase their bottom line.
Greater control and flexibility
Open communication and reliability are important for buyer-vendor relationships, but face-to-face interactions strengthen them further. This close proximity gives businesses control over the quality and processes that lead up to the procurement of their materials, which also minimizes the risk of errors.
Additionally, local vendor sourcing gives brands the flexibility to increase, decrease, or make changes to material volume units as per demand planning. Suppose a customer suddenly demands higher units for a product or sees a high demand for one of their products during the holiday or sale season. In that case, it’s easy to manage production and inventory when the vendor is placed locally rather than globally.
Use your network to find vendors who are in need of support and can deliver the goods you need. It may be surprising to see how quickly you can source items that independent retailers have and which aren’t stuck on a shipping container somewhere.
Overall, this makes the supply chain and procurement process smooth and gives businesses the reins to manage it however they like.
Launch products faster
A shorter supply chain and closer elements mean faster delivery and production runs that aid quick product launches. Since materials can be sourced locally, there’s a lower possibility for delays and a better chance of meeting high consumer demands.
Besides, buyers and vendors are in the same time zone, which helps communicate faster and efficiently. Even if there are some issues, buyers can solve them quickly because of the local nature of both the vendor and materials.
Reduced environmental impact and good for the economy
Localizing the supply chain reduces shipping and storage, leading to lower energy use and emissions. This significantly reduces industrial environmental emissions and portrays the brand in a sustainable light.
Such practices also help brands spread awareness about the environmental impacts of supply chain activities and build consumer trust and loyalty.
Additionally, local sourcing benefits the bottom line of both business and the vendor, contributing to the good of the economy.
It also opens opportunities for fundraising and further investments to push the economy further.
- Unavailability of items locally
- Resistance to change
- Economic implications may affect delivery and supply chain
Unavailability of items locally
One of the most challenging aspects of local vendor sourcing is that each item on the list might not be available locally. Businesses may have to contact suppliers that are more expensive or located far away.
Even then, there’s no guarantee about the reliability of the vendor. Add to that the additional costs and uncertainty about product quality and it impacts the entire procurement process.
Resistance to change
Local vendors aren’t very open to change, especially if a business requires innovation or a slight change in production processes. This change can affect customer experience and stain the buyer-vendor relationship.
Economic implications may affect delivery and supply chain
Businesses rely on their country’s economy by localizing the sourcing process, which means even the slightest change can uproot their procurement systems and supply chain. This can cause delays, an increase in the price of materials, transportation costs, or warehousing that will severely affect the bottom line.
Tips for sourcing local vendors
When businesses begin the local sourcing process, they naturally incline toward the vendor offering the best price that benefits their margin. However, many things contribute to the success of your sourcing efforts than saving a few bucks.
To ensure seamless vendor sourcing and great results through it, here are some tips:
- Cast a wide net for your vendor search
- Make networking your best friend
- Dig deep to find existing industry vendors
- Leverage trade shows and exhibitor directories
- Cash in on group purchasing
- Consider local sourcing as a financial portfolio
- Explore local artisans and designers on online marketplaces
Let's look at each one a bit closer.
1. Cast a wide net for your vendor search
There is no one-size-fits-all approach to finding the best materials and vendors. The first best step is to avoid restricting yourself with one or two proven methods and cast a wider net for vendor search. This can include:
- Market research
- Competitor analysis
- Trade shows
- Non-competitor vendors
This gives brands the flexibility and leverage to scan the entire market, understand which options exist, and then choose a vendor rather than hurriedly saying yes to the first one they find. Through this approach, brands can better understand and discover alternative production methods, industry terminology, and negotiation or pricing tactics.
Brands can also attend trade shows and reach out to non-competitor vendors in the industry, which we’ll talk about in detail later. But it’s important to note that it can be difficult to get people talking when it comes to sharing contacts of the vendors they use.
Don’t be surprised if people you come across are not willing to share names or contacts directly. It’s fairly common for people to be secretive about the vendors they work with for justified reasons, so I would suggest utilizing the internet. Google is a tremendous resource, and companies can use it to identify relevant suppliers within their industry using key terms.
2. Make networking your best friend
Networking is one of the most critical facets of growing a business today, and it’s less complicated than people make it out to be. There’s an existing network of people in your industry on every social media platform, perhaps some going through the same supply chain issues and business difficulties as you.
Speaking to them can give refuge in the fact that you’re not alone, and in the process get access to some crucial resources that aren’t readily available online.
I network through Twitter often and found @terra_simply a year ago. When we started sourcing last year’s Christmas bundles, we had to explore local options to help us secure inventory on time. They can quickly make our products, and her facility is less than two hours from us. A quick drive up the road and we have our candle add-ons in stock. While it’s slightly more expensive, we have peace of mind that one of our SKUs will show up on time. Plus, now we can market that they are handmade in the US!
Simply sending a message to someone in the industry to have a quick chat can prove to be immensely helpful for businesses.
As an upside, they might find a vendor or get pointed in the right direction through a word-of-mouth referral—a win-win in any case.
3. Dig deep to find existing industry vendors
Established industry vendors who have been in the industry for a long time produce excellent quality materials and sell at a convenient price point. It’s not certain that you'll only find the best vendors online or through referrals. Businesses need to dig deeper and find industry vendors through unconventional methods.
For example, the best place to connect to your local food suppliers is a community’s farmers market. It’s the go-to place for entrepreneurs and farmers to display their life’s work in the form of small-scale food production. But it wouldn’t be the first place a new restaurant or food production business would go to source materials because it’s not a popular method, yet it’s one of the most effective ones to find passionate vendors.
Besides, brands can also tap into the vendors used by existing businesses in their industry to source their materials.
In the food production industry, you can learn where some of your favorite local-focused restaurants source their ingredients—these farmers and producers would have experience working with lead times, larger order sizes, and payment terms.
4. Leverage trade shows and exhibitor directories
Trade shows offer excellent opportunities to scope out competition, assess new trends in the industry and country, get great deals on the materials businesses want, and identify new and existing suppliers to build connections.
Trade shows or exhibitor directories from previous shows are a great resource if you don’t have a sourcing agent.
EventsEye is a great platform to find tradeshows happening in and around the country. However, businesses should only attend events relevant to their industry and the materials they require. If you want to explore a wide variety of materials by different vendors in your market, attend horizontal trade shows, which offer a wide variety of offerings across categories. However, if you have a specific vendor or material requirement, vertical trade shows that display smaller collections may be more beneficial.
Additionally, buyers can check supplier and wholesaler lists on the trade show’s website to ensure they don’t waste time or money, as trade show tickets can be quite expensive. After attending the event, they can also ask the organizer or use exhibitor directories to get the entire list of participating vendors and suppliers.
5. Cash in on group purchasing
A group purchasing organization (GPO) partners with the best suppliers in different industries and combines the purchasing power of all its members to leverage big discounts on the materials they require to run their businesses.
Small and independently owned businesses can leverage group purchasing to work with local vendors or suppliers with higher minimum orders that SMBs can’t otherwise hit alone. SMBs can leverage communities, like chambers of commerce, to help facilitate this.
By being a GPO member, brands can secure pre-negotiated contracts with vetted suppliers in each industry, partner with top suppliers and retailers, and elevate their existing procurement strategies to improve overall spending.
Una is one of the leading group purchasing organizations, with over 2,000 supplier contracts, and is free for everyone to use.
6. Consider local sourcing as a financial portfolio
Local vendor sourcing comes with its own set of risks, like the effect of the economy on supply chain issues, the increase in transportation costs, or state tax and natural disasters. So, it’s safe to say, despite taking safety measures, you can still be left with some uncertainty that should be planned for and mitigated.
One of the best ways to do this is by thinking of local sourcing as your financial portfolio.
When I advise clients on local vendor sourcing, I recommend they consider it like a financial portfolio—you want to minimize your risk. So, diversification across geography, lead time, and the supplier’s own suppliers—by factoring in things like natural disaster risk, transportation options—are important.
As Jonathan suggests, a great way to mitigate such local sourcing risks is to not put all your eggs in one basket, but diversify your operations across cities, different lead times, supplier reliability, and even have a backup supplier close to your home.
7. Explore local artisans and designers on online marketplaces
Many websites and marketplaces feature work done by independent designers and artisans. These are underrated yet professional artisans whom businesses can work with to source the materials they require and even get them custom-made as per their specifications.
These artisans may not be professional vendors or listed suppliers but possess rare talent that businesses can leverage to get an edge over their competitors. They can also market the product as “locally made” and enjoy customer loyalty and good karma.
Marketplaces like Wescover open up a new way for consumers and designers to connect directly with creators from around the world. You can search by location and shop locally to save time and money on shipping and delivery and opt for a more environmentally friendly way to shop.
Start sourcing local vendors for your retail business
Vendor sourcing is a key element in the procurement process and, if done right, can significantly enhance your operations and bottom line.
While finding a vendor for your business needs may seem like a daunting task, it won’t be once you get it right. Vendors look for long-term relationships with buyers and can be beneficial on both ends in terms of consistency and reliability. Plus, it can pay dividends for years to come.
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