Strategic Sourcing is a procurement strategy for value creation within purchasing processes, focused on building mutually beneficial results for all parties involved.
Strategic Sourcing is to Traditional Procurement what IoT has been for Warehouse and Inventory Management:
A shift in process, a means for innovation and a requirement for a new mindset.
“A key difference to conventional purchasing is that strategic sourcing focuses on converging and sustaining buyer-supplier relationships. The objective is to leverage them, exploit their capabilities, integrate and complement the core competencies of the various partners in the supply chain (interdependence) in order to provide value, cost efficiencies and uniqueness to the customer” (smartprocurement.co.za 2017).
Strategic sourcing is a methodology for higher-collaborative value creation amongst all supply chain actors.
For this very reason, its proper implementation could quite possibly be the most influential element of an overall procurement strategy.
So… What do I know that you don’t already know?
Maybe nothing, maybe a whole lot. Maybe, just a shift in perspective from your current understanding of what it means to practice successful strategic sourcing.
Here are: 3 Keys for improving your Strategic Sourcing.
1) Profitability and Sustainability: Aligned
Cost isn’t the sole factor for success within strategic sourcing, but rather building long-lasting relationships with suppliers in order to leverage the best possible value.
When building strategic sourcing into a procurement strategy, it’s important to ensure a shift away from the traditionalist view of purchasing methods. Low-cost, non-sustainable products aren’t an option when aligning profitability and sustainability. Just because a product seems to be a low-cost option, and it provides immediate competitive edge, doesn’t mean that the profits will prove to be sustainable.
Quality and sustainability have become concerns of consumers and suppliers alike. Making conscious choices to align sustainability performance, as an indication for supplier quality, will return in more long-lasting relationships with suppliers and customers, alike.
Collaborative relationships typically result in the decrease for overall spend. And, there in lies profit: Collaboration driven profitability.
“Long-term partnerships can also help organizations achieve sustainability goals (Elkington, 1998). Effective sustainability initiatives that incorporate the “triple bottom line,” that is including environmental, social, and economic considerations into the sustainability plan, can improve an organization’s image with its customers, improving overall economic performance (Carter and Jennings, 2004; Carter and Rogers, 2008; Ellen et al., 2006)” (Knight 2017).
Download FREE eBook - 8 Supply Chain Trends impacting your Business in 2018
2018 remains an enigma, but the supply chain trends next year plans to bring have already begun to poke their heads out…
2) Supplier Data: RFIs
In an age driven by technological disruption, data reigns supreme. Ensuring comprehensive strategic sourcing requires the compilation of supplier data from both, existing and future supplier partners.
Without this data, your procurement team isn’t able to leverage supplier competencies, and/or avoid their weaknesses. Without data, your collaborations are essentially a shot in the dark, and very much prone to human error/corruption.
Before choosing to collaborate with a supplier body, utilizing an RFI (Request for Information) is a proper method for vetting their compatibility for your overall sourcing strategy.
Strategic sourcing is best practiced when you’ve research your options before choosing to collaborate. Gathering market information is essential for understanding a supplier’s competencies and capabilities within the market’s scope.
“Typically, RFI’s are designed to gather data on suppliers regarding quality programs, financial stability, service capabilities, plant locations, references from clients, organizational structure, and a mired of “other than price issues.” It is also a good time to send out your standard terms and conditions that will eventually be employed. This early review allows the firms to give cursory review to prepare themselves for further discussion if they qualify to the proposal stage” (Engel 2004).
Requiring information and sharing expectations gives context to the formation of a relationship, and builds value and trust from the start. Not to mention, RFI data could be the data that drives decisions for future collaborations with supplier bodies.
But, that’s a question of adopting digital procurement solutions that offer such business intelligence. Data compilation and utilization will be the next big technology implementation for procurement teams — at large. The use of data and analytics will be the decisive factor for separating sourcing teams from their competition.
3) Risk Management: Assessment of Suppliers
Without proper assessment of suppliers, there’s no way to know if performance and quality is being met — in line with your company’s expectations.
Taking a holistic approach to your strategic sourcing is a best practice when completing supplier governance activities.
You should be assessing supplier on the following elements:
Sporadic assessment of supplier bodies can prove to be crucial to the mitigation of supply chain risks, materializing in the various tiers outside of your direct control.
As well as aligning suppliers with your code of conduct — providing the opportunity to develop suppliers, and allowing you material for comparison — supplier assessment is, yet again, a fantastic source of supplier data compilation.
“Even if your organization has to change suppliers or renegotiate, having enough recorded data can help you make this decision, as well as others. In fact, using the right processes can provide some concrete information about who the suppliers are and perhaps even what their practices might be in the first place” (strategicsourcerer.com 2017).
Risk mitigation is a matter of strategically loading the deck. If you know what hand you’re going to be dealt before the cards come out, you’ll probably be able to bet more money without feeling vulnerable.
But, in order to have such confidence in a supplier relationship, it must be nurtured, managed, governed and supported by digital solutions.
Connecting your global supplier relationship management on a digital platform is the best way to ensure you have direct lines of contact, and means for storing pertinent sourcing data.
The Common Denominator
Each of the key elements of strategic sourcing improvement has a common denominator that can optimize their actualization.
You guessed it:
Digital procurement solutions are the cultivation of the issues procurement and sourcing professionals have faced for years. There’s no need to worry about the tedious compilation of data in spreadsheets, or the occurrence of human error. Adoption of digital procurement solutions can help you avoid those headaches, and automate your workload.
Working efficiently in 2018 means working with the technology available in 2018. Anything less, is a self-deprivation of the new status quo.
Until next week.
This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.