Breaking Down Strategic Sourcing Steps and Processes for Manufacturing in Mexico
April 27, 2022
As a manufacturer, you can’t afford to haphazardly select suppliers that might put the quality and efficiency of your production at risk. Instead, you need to start taking a more strategic approach to sourcing in Mexico.
What is Strategic Sourcing? Why Does It Matter?
Too often, material procurement processes are focused on upfront prices, but this shortsighted approach could end up costing you more in the long run. While price is, of course, a critical factor to consider, you don’t just want the cheapest solution. That’s where strategic sourcing comes in.
Strategic sourcing in Mexico is a more holistic approach to procuring goods or services. It looks at procurement as a loop between business and supplier rather than a one-way transaction, with the goal of adding long-term value to your business through continuous reevaluation and optimization.
The Sourcing Steps You Need to Follow
While exact processes will vary among each manufacturer, procurement professionals generally follow a proven 7-step strategic sourcing process that industries and companies across the globe have adopted as a best practice.
1. Understand Your Needs
Before jumping into market analyses or supplier negotiations, you need a clear understanding of your sourcing category. This step usually involves conducting a spend analysis, which allows you to establish a baseline by consolidating spending data on current suppliers, end-users, and the types, quantities, and sizes of products or services being sourced.
The more spend visibility you have, the easier it is to create initiatives to optimize your procurement, reduce costs, and minimize supply risks.
2. Evaluate the market
After thorough internal analyses, you then need to take a deep dive into the supply market to identify opportunities, risks, and potential suppliers. As part of your market analysis, you’ll need to look at key cost drivers, such as the costs of raw materials, labor, import/export, shipping, and more.
3. Develop Your Strategy
With a clear understanding of your internal needs and the market, you can begin determining your exact evaluation criteria and narrowing down your supplier pool. While you aren’t selecting a supplier yet, this step allows you to look at both new and current suppliers in comparison to your requirements, so you can better determine from whom to purchase goods or services while minimizing risk and costs.
Tip: You’ll want to bring in all stakeholders during this step to ensure your criteria are fully aligned with your business needs and capabilities.
4. Choose Your Sourcing Process
Once your list of suppliers has been narrowed down, you can begin soliciting bids, the most common methods being:
Request for Quote (RFQ): Usually used for sourcing the goods and materials needed in manufacturing, RFQs are used to gather specific purchasing information, such as product specifications and pricing, from vendors.
Request for Proposal (RFP): Requests for proposal are more commonly used for sourcing services and contain all of the details related to a particular project, from service specifications and pricing to legal terms and conditions.
5. Choose a Supplier & Negotiate
The fifth step finally involves selecting a supplier. With the previously determined criteria and the information gathered from your RFQs and RFPs, you’ll be able to decide which supplier is the best fit for your business. This step also includes any negotiations on final pricing. In many cases, companies manufacturing in foreign companies enlist the services of third-party procurement consultants to ensure they’re getting the right deal.
6. Implement the Solution
After negotiating and identifying the supplier with whom you want to partner, it’s time to implement the new product or service. During this step, everyone from the supplier to end-users should be involved to ensure a smooth integration process.
7. Track Your Results
The process doesn’t end once the product or service has been integrated. Tracking your results is the final key to effective strategic sourcing. The most efficient way of monitoring your sourcing strategy is to leverage procurement software with automated reporting capabilities, so you can easily track budgets, spending, and supplier performance, and give yourself clear insight into how much value your suppliers are adding to your business.
Why Are Businesses Choosing Mexico for Strategic Sourcing?
Manufacturers aren’t just attracted to Mexico for the opportunity to lower production costs. Mexico also gives companies competitive advantages when it comes to the material sourcing process. Some of these major benefits include:
- Reliable supply chains: Mexico’s manufacturing communities have contributed to the creation of vertically integrated supply chains, which give manufacturers chances to source locally.
- Infrastructure: The country’s robust transportation infrastructure help ensure purchases are executed in a timely, cost-effective manner.
- Tax incentives: The IMMEX program and USMCA give manufacturers preferential tariff treatment on any imported items.
- Shelter services: Under the IMMEX program, manufacturers also gain instant access to experts in Mexico manufacturing, such as NAPS—an invaluable advantage when critical negotiations and purchases need to be executed in an unfamiliar location and language.
Get the Material Sourcing Support You Need With NAPS
When you’re navigating the complexities of manufacturing in a foreign country, taking a new approach to sourcing might be the last thing on your mind. Part of NAPS’ commitment to provide exceptional service, NAPS added the sourcing department to its already comprehensive Administration and Compliance Management Program to further aid in its clients’ success in Mexico.
Contact NAPS today and discover how our decades of experience and proven strategies help you find success in Mexico.