In today’s competitive business climate, procurement professionals are constantly seeking out creative ways to reduce costs and assure or improve the quality of service. Strategic sourcing is one method that managers can use to help achieve these goals.
Strategic sourcing is the continual process of measuring, evaluation and improving the purchasing activities of a company. It is one of the most powerful tools that purchasing professionals and businesses have available to bring significant bottom line results to a company.
Rather than taking a reactionary or fulfilment approach to purchasing, strategic sourcing takes a proactive, data-driven approach. So why aren’t more organisations employing this technique to office supplies purchasing?
Although essential for business, often office supplies are seen as a tactical commodity. However today office supplies is about so much more than pens and paper – the category encompasses a huge range of products and services, from personalised print to furniture and facilities supplies.
The bottom line is that true strategic sourcing takes considerable resources to carry out. Resources that the charities, law firms and businesses we help simply don’t have.
Strategic Sourcing vs Tactical Sourcing
“We need 100 A4 pads, let’s find the best price,” versus
“Last year we needed 100 A4 folders in Q4. Here’s what we spent on it. Let’s review how many we will likely need for the year. Let’s negotiate the best price and ensure the same quality and value.”
Strategic sourcing achieves efficiencies by formalising the way spend information is gathered, analysed and factored into the procurement process. By nature it considers factors far beyond the cost of a product or service. Driven by experience, evidence and fact, strategic sourcing eliminates the potentially high cost of emotion-based procurement decisions.
This approach allows us, on behalf of our clients, to secure the best value in the marketplace as well as long-term sustainable pricing.
6 elements of strategic sourcing
To implement a successful strategic sourcing plan in your business, it’s important to understand the key elements:
1. SPEND ANALYSIS In the initial data-gathering phase, pull together information on your past, current and anticipated needs; historical spend data; plus realised value and ROI of products/services purchased.
2. DEVELOP YOUR STRATEGY This involves deciding where to buy while minimising risk and costs. The strategy will depend on what real alternatives there are to the current supplier, how competitive the supplier marketplace is and how open the users are to a new supplier.
3. SUPPLIER QUALIFICATION This stage of the process combines your strategy above with information gathering on potential new suppliers. Once potential suppliers have been identified, it’s time to assess their quality, service, reputation, capabilities and price.
4. NEGOTIATION After receiving initial bids from qualified suppliers, negotiation begins with a conventional or online process that helps secure the optimal price.
5. IMPLEMENTATION Ensure that any new supplier is fully involved in the implementation process. Communications to all relevant stakeholders will include any improvement to products or services, changes in delivery or pricing etc.
6. SUPPLIER MANAGEMENT Often this last step is the hardest to stick to for time-strapped teams. However strategic sourcing formalises the process of assessing supplier performance, and helps ensure they are consistently fulfilling agreed targets or KPIs.
Strong management of suppliers incorporates a scoring process to measure specific performance areas such as product quality, delivery time, customer service and more. Additionally, regular supplier meetings help to forge long-term relationships, improvement plans and address any issues.
Advantages of strategic sourcing
While strategic sourcing can prove time-consuming for small teams, the rewards are numerous. Outsourcing to firms such as Red Herring can help you to gain the benefits, without bringing additional workload to your team.
· Increase profit – Every dollar the company saves in procurement goes directly into the P/L bottomline and adds dollars to the profit. Strategic sourcing systematically looks for savings from the whole supply chain, providing the company with a competitive advantage.
· Manage supply risks – Strategic sourcing requires every category of spend and all suppliers to be analyzed. Each existing supplier is evaluated separately for quality risk, financial risk, availability risk, and level of cooperation. Once the risks are identified, you can then take action to avoid or mitigate the risk.
· Improve sustainability – Strategic sourcing is not a one-time project or initiative; it is a continuous cycle of activities. Dedicated category managers within the team will keep an eye on category and supplier performance. With every subsequent cycle, they can go deeper to find additional opportunities to bring value to the company.
· Get more value out of procurement – Strategic sourcing does not mean you are looking solely for quick cost cuts. Every action taken during your strategy implementation is evaluated using the following criteria: Does it provide more value at the same cost, does it decrease operational costs, or does it increase operational speed?
Identifying the best suppliers is important. However, there is more to strategic sourcing. Cultivating a positive and long-term relationship by working closely with your suppliers can provide many wining scenarios.