For all of the different definitions of strategic sourcing, the process comes down to one simple idea: Get the most for your money. The path of how to get there, though, can differ from organization to organization.
By definition, strategic sourcing is an approach to purchasing goods and services. Instead of simply looking for good deals, strategic sourcing brings a larger approach to supply chain management in search of larger efficiencies. The process looks at everything an organization buys—from whom and at what price and at what volume. The process places an emphasis on the entire life cycle of a product, not just its initial purchase price, to find the best overall value.
Now, that value may have a different meaning for each company. For some organizations, it may be to purchase a large number of goods; for others, it may be the highest quality; while for the rest, it is some combination of the two. In the end, the company wants to find the best price that can provide a long-term benefit.
To do this, organizations look for comprehensive software that can help manage this process.
“Strategic sourcing does not just involve a five- or seven-step flowchart. Nor is it just a ‘leave behind’ by consultants once they’ve helped your organization to identify savings,” writes Jason Busch, Michael Lamoureux and Nick Heinzmann at Spend Matters. “Rather, strategic sourcing is a process that maximizes the value of each purchase made by a company—at least in theory! And it’s one that, in our opinion, requires the support of a solid technology solution that in turn must support each step of the process.”
It is the same no matter the industry, from food and beverage to education and day care. All organizations want to get the most out of their procurement no matter what they actually purchase. Let’s look at the top five objectives organizations should look for in a strategic sourcing solution.
5 Strategic Sourcing Goals
Understand Internal Operations: The first priority of any strategic sourcing initiative is to understand an organization’s current procurement environment. What does the organization spend in different areas of procurement? Organizations need to collect information on their current procurement operations, categorizing different purchase amounts, confirming usage information, and understanding what goods and services are currently being procured and why. Doing this assessment will provide a baseline for improvements that can be made once a strategic sourcing initiative begins.
Understand Suppliers and the Supplier Market: After an organization understands where it currently stands, it can begin looking at both its suppliers and the supplier market. Are there certain suppliers that continually disappoint with incomplete or late shipments? Has a supplier significantly raised prices in recent years? What suppliers deliver the best service? By looking at who currently provides goods and services and then looking at their competitors, organizations can gain a better understanding of where potential efficiencies lie.
Develop a Sourcing Strategy: This serves as one of the main objectives of strategic sourcing. Organizations need to develop a procurement strategy to get the best goods and services for them. Do they want to save money? Do they want to procure better goods? The sourcing strategy will serve as the guide for procurement going forward, so it is an incredibly important aspect of strategic sourcing.
The sourcing strategy for the category will depend on three primary factors:
- How competitive is the supplier marketplace and can organizations looking to purchase get potential suppliers to compete with one another?
- How aligned are the organization’s users on the need versus opportunity to test incumbent relationships? It may be difficult to try a new supplier if a negative test could greatly impact the bottom line.
- What alternatives to a competitive assessment exist in an organization in this category or closely related categories? More alternatives mean the chance to drive down price, while one or two suppliers may leave a company stuck.
Implement a Strategic Sourcing Software: There are many factors organizations need to take into account to improve sourcing. A strategic sourcing software is imperative to managing the procurement process. A good strategic sourcing software can handle a number of procurement-related activities such as conducting a spend analysis, issuing electronic RFPs and RFQs, holding a reverse auction and digital contract management. All of these factors can reduce the cost of procurement, so a strategic sourcing software is an imperative tool to improving procurement.
Get Started: Strategic sourcing can provide myriad benefits. Once the other steps have been completed, it is time to implement. Strategic sourcing is an ongoing process. Businesses should always be looking to improve and refine their strategic sourcing process. The cost of goods and services change. New suppliers emerge. The business needs change. These factors always shift, so businesses need to make sure their strategic sourcing model is always on par with the company’s overall needs.
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To have an immediate impact on your procurement process, you need the right software platform. Procurement is complex, and your software solution should be able to account for its nuances. That’s where ProcurePort can help. Visit our website to learn more about ProcurePort’s e-sourcing software and how we’re helping companies like yours achieve their eProcurement objectives.