Last week, I was in a meeting where someone described the company’s Strategic Sourcing group as the peacekeepers in their organization. Take a moment to consider that…. What else would you call the team that is responsible for navigating the gulf between upfront costs and long-term savings while meeting the needs of multiple stakeholders? Strategic Sourcing isn't a job for the faint of heart.
Strategic Sourcing was a term and process coined in the 90s when the dotcom era was transforming industries at record speed. Since then, the methodology has become a staple in successful procurement processes. With Strategic Sourcing, firms can focus on maximizing the value of the entire procurement process rather than simply choosing what initially has the lowest upfront price – increasing the efficacy of procurement.
If we were to look at driving as a metaphor, it would be the equivalent of plotting your course to a destination rather than picking a route spontaneously at every cross-section you come across. By planning ahead, you end up saving time during your journey. Implementing Strategic Sourcing is to see past the initial pricing and to take a long view of of the goals and needs of the organization.
Like drivers, businesses that use Strategic Sourcing begin by setting a destination and then figuring out the best way to get there: analyzing their business needs and historical spending, followed by outlining a strategic plan, conducting data collection and market analysis that breaks down the roster of potential suppliers. Strategic sourcing takes into account all activities that happen during the procurement cycle, from specification to receipt and payment of goods and services. As a result, businesses that use Strategic Sourcing can develop channels of supply at the lowest total cost, not just the lowest purchase price.
Here are 4 key benefits to Strategic Sourcing:
Take a Long View
The most obvious benefit businesses will experience from Strategic Sourcing would, of course, be the reduction in cost. Identifying and selecting suppliers that provide the highest value at the best price can open up compelling opportunities for your business. Even if the outcome is identical, paying less for that outcome is always preferable! The opportunity cost saved from investing in a less-than-optimal supplier may then be used to invest and improve other aspects of your business, giving you an edge against competitors.
Align Sourcing Objectives with Business Objectives
It can be difficult to draw direct comparisons between suppliers in the same industry. If you’re overly deferential to your suppliers, they can make it feel like you're comparing apples to oranges. A supplier that offers the most cost-effective pricing in one aspect may not be the best in another. The key here is to be clear and concise in identifying what you need from the supplier. You will always want to align your sourcing activities to your organizational goals and objectives. Remember that you are optimizing for value, not cost. Cost is a component of a value, not a synonym for it. Strategic Sourcing is what allows these vague differences to become quantifiable and directly comparable in terms of data. Better alignment between between procurement teams and stakeholders allows your business to achieve better performance with higher efficiency while minimizing the risks in your supply chain.
A Long-Term Relationship With Your Suppliers
Most organizations enjoy switching suppliers about as much as people like visiting the dentist. Not only is it disruptive to your business, but it can also be costly and time consuming for your team. Your relationship with your high-value suppliers should be one that is highly collaborative and mutually beneficial (a win-win). Strategic Sourcing helps you achieve that by focusing on the core capabilities of the suppliers and assuring the right fit for the sourcing objective. This creates synergy between the organizations and its suppliers. Both the suppliers and the business should aim towards a mutual goal of success. Put simply, your suppliers should want you to succeed while feeling appreciated for their contributions to your success. Customer success is a key to repeat business and referrals.
Beyond the initial negotiations and contracting, Strategic Sourcing also involves measuring performance and continual process improvement. As you work with a supplier, you should be monitoring KPIs and collecting qualitative feedback from stakeholders. While some of the collected data might be sensitive, it’s worth considering what you can share with your suppliers so they can remediate any issues and double down on the things that are working. A shared emphasis on continuous improvement and sustainability of the supply chain provides increased flexibility in how you cooperate.
Establishing a Systematic Approach to your Procurement Processes
Strategic Sourcing allows your procurement teams to optimize productivity, increase compliance, and lower costs across the board. With improvements in data collection and digital transformations across the procurement industry, Strategic Sourcing is rapidly growing in popularity, revolutionizing procurement and supply chain processes. Coupled with a more systematic approach to cost analysis, negotiations, supplier sourcing, and even contract management, you will always be armed with the information you need to be effective.
Strategic Sourcing is an analysis of what your organization buys, from whom, at what price and at what volume. We at Vendorful are here to help you implement and streamline your critical procurement processes. To continue the driving metaphor, we are the GPS that helps guide you to your destination, saving you all the trouble from manually plotting with a map while achieving the best outcome. It's our job to make your life easier and save you from traditional “Time Sucks.”
If you want to see how Vendorful can help you automate your processes and support you in your efforts to build a world class Strategic Sourcing program, we would be delighted to talk with you. Get in touch with us today.