In today’s increasingly competitive business environment, it’s not enough to choose a supplier based on unit cost alone. Every aspect of procurement, from finding the best possible values to aligning purchases with your business’s goal and values can and should be optimized. Strategic sourcing is a way to approach supply chain management that formalizes the way you gather and use information about supplies and purchase options. It helps your organization get a handle on ongoing market analysis and puts an emphasis on building beneficial relationships with your suppliers.
What Is Strategic Sourcing?
In strategic sourcing, the company works to achieve the lowest possible Total Cost of Ownership (TCO) and to minimize their supply chain risk. The organization continuously evaluates and re-evaluates its sourcing activities to ensure that they are always in line with their values and goals.
In this arrangement, suppliers are viewed as crucial partners. The organization works to create a sustained and collaborative relationship. This relationship is assessed at every stage in its lifecycle to ensure that supply and equipment needs can always be met.
Strategic sourcing is a long-term process. It requires skilled personnel and the right technological tools to be effective.
Why Do You Need Strategic Sourcing?
Getting started with strategic sourcing requires a change in the way you do business. It’ll require updating and formalizing processes and, most likely, acquiring new software to put new strategies into place. While this can seem unwieldy at first, the switchover pays off dividends in many ways.
Increased Cost Savings
The most immediate and obvious benefit is lower costs. When an organization identifies and chooses suppliers who offer the best value at the right price, they can continually reduce their spending. In a recent survey, more than half of all procurement specialists recognized that cost savings is a key area of focus.
Find Your Ideal Suppliers
In order to put strategic sourcing to work for you, you’ll need to analyze your suppliers and their core capabilities. The information you glean will allow you to match your business objectives to your ideal suppliers. This allows for the highest value creation at the lowest cost. However, benefits go beyond cost. This is also an area where companies can find the best way to embrace their core values. For instance, a company that prides itself on fighting climate change will now know the best vendor partners to help them keep pricing in line while reducing their impact.
Build Long-term Relationships with Suppliers
In strategic sourcing, the suppliers are considered partners. By nurturing relationships, they are made to feel valued by their customers. In turn, this can motivate them to optimize their performance to meet your organization’s needs. This can include finding ways to reduce costs, offering customized products, helping avoid supply disruptions, and more.
Implementing Strategic Sourcing
No one process is going to be a fit for every organization. However, a basic framework for the transition can start with the following:
- Identify and categorize spend profiles. Look at where your organization spends money, and rank areas based on how critical spending there is.
- Build your sourcing strategy. Define your goals and your timelines.
- Analyze the supplier market to find who can supply what you need.
- Contact suppliers for information.
- Select the suppliers that offer the best prices while fitting your goals.
- Work to build a relationship with your supplier through Supplier Relationship Management (SRM).
- Track and measure.
Your strategy should be revisited regularly. New suppliers may move into your area and may offer a better product or a better price. Your business goals may change as you offer new products and services to your own customers.
Over time, taking a strategic approach to your supply procurement can dramatically improve your business. You’ll spend less on the supplies that keep your company running, which means a better profit margin or the ability to reduce your own prices you extend to customers. You can weather potential issues like supply chain disruptions by having a group of alternatives ready. You can ensure that your business is always working in a way that is congruent with your company’s values and goals.
More and more companies are moving toward strategic sourcing to cut their costs and make their procurement smoother. If you adapt now, you increase your chances of getting an edge on the competition. Incorporate this new method and you’ll find that you can get cost savings without a compromise on quality, putting your business in a more competitive position.