Discuss the significance of sourcing as a crucial function of retailing by explaining the steps in sourcing process with a suitable example.
The first step after determining the products and the quantities that are required across various stores is to determine the sources of supply. In business, the term word sourcing refers to a number of procurement practices, aimed at finding evaluating and engaging suppliers of goods and services. Having determined the type of merchandise to be stocked in the retail store, the merchandise then needs to either be manufactured or sourced. The decision on make-or-buy becomes the first decision to be taken.
Merchandising is a branch of marketing theory and practice concerned with maximizing product sales by designing, packaging, pricing, and displaying goods in a way that stimulates higher sales volume. The underlying assumption in merchandising is that consumers may have a general need for (or interest in) a certain class of product, and it is the merchandiser's task to present the product in a way that best captures consumers' attention and persuades them that the product will fulfil their needs and wants. Merchandising employs a wealth of theories about consumer behavior to accomplish this.
Merchandising is sometimes seen as equivalent to retail trade, particularly for stores that sell a large volume of popular items (i.e., "mass merchandisers" such as Wal-Mart Stores, Inc.). This view emphasizes merchandising as a function of choosing product
lines to carry that are likely to move quickly, organizing the store to maximize traffic past profitable lines, and maintaining visual displays and advertisements that turn traffic into sales.
The make-or-buy decision is a crucial choice that has to be made by the retailer. The choice is between the in house manufacturing of the product or buying the product from an external supplier. This decision is typically executed at the strategic level because it has implications on cost, and hence the profitability. Issues like government regulation, competing firms, and market trends have to be considered. The two important factors to consider in a make-or-buy decision are cost and the availability of production capacity. In case the retailer decided to manufacture the product in house, the process to be adopted will be different as compared to, when retailer decides to outsource the product.
In most cases, purchases account for one of the largest if not the largest part of the total cost. Thus, the importance of sourcing is self-evident. Though many times the terms sourcing and procurement are used interchangeably, they actually represent two fundamentally different concepts. Sourcing refers to the value added process of selecting suppliers and the respective cooperation scheme and it must be supported by advanced analytics & market intelligence, supplier performance information and a concrete and well-developed strategy. On the other hand, procurement refers to the transactional of the relationship and should be streamlined as much as possible in order to achieve efficiency.
The process of merchandise sourcing starts with the identification of the sources of supply. The first decisions, which has to be faced, is whether the merchandise that is going to be sourced from domestic or regional markets or from international markets. This is largely related to the type of retail organisation, the product being offered and the largest consumer. For example, products like high fashion garments, exclusive watches, perfumes, cosmetics, etc may be obtained from international market.
Before implementing any sourcing initiatives, it is very important to analyze past, current & projected spending patterns. The analysis must span the entire enterprise and include data that is often collected
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