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• In today’s business environment, a strategic sourcing strategy is critical for optimal operations. Businesses need to formalize the manner in which they gather and use information that informs their procurement activities.
• Strategic sourcing takes a long-term and proactive view of a company’s purchasing activities. It seeks to consolidate purchasing power, develop useful relationships with suppliers, take advantage of new opportunities, and mitigate long-term supply chain risks.
Over the years, strategic sourcing has evolved as the world continues to organize data, and better tools for accessing and analyzing data become more available. In 2020, the effects of COVID-19 lay the importance of agility and preparation for the unexpected bare. Procurement managers appreciated the need to be aware of important trends in strategic sourcing. Heading into the last quarter of 2022, here are some important trends in strategic sourcing to look forward to.
Migrating to Cloud-Based Operations
Organizations are in a hurry to free themselves of the shackles of on-premises software that requires installation in every hardware being used by staff. By relying on cloud software for procurement operations, including strategic sourcing, the organization’s team can be based anywhere in the US and the world. This means that the organization has a much wider pool of procurement talent to source from. In addition, important software being offered on a subscription basis makes it possible for smaller organizations to use software that would otherwise be too expensive to purchase. Investments in expensive hardware are also being slashed as organizations move towards fully cloud-based operations.
Having a Digital Strategy
There are numerous technologies and resources available for sourcing teams to take advantage of. However, organizations need to have a strategy in place to make the best use of it. The digital system is a descendant of the sourcing strategy. First, organizations should know what information sources to rely on, what information to gather, how to organize it, and so on. The digital strategy also includes deciding on what talent the organization requires to have on the sourcing team. Currently, business intelligence experts and data analysts are essential to have on the team. They can quickly generate reports to help make quick and informed decisions.
Preparedness for Volatility
A strong sourcing team helps a business ride out unexpected events in the market. For instance, having data organized and stored ready for querying means that an organization can choose an alternative vendor in case a contracted one cannot deliver as expected. It means that an organization can respond to price shocks quickly. The business environment today is such that organizations are faced with a wide range of external factors including geopolitics, extreme climatic events such as floods and wildfires, as well as the possibility of another global pandemic.
Agility is no longer just a buzzword in procurement management circles. It is extremely important for businesses to be able to pivot after considering new information. For instance, if the sourcing team manages to find new suppliers of similar or better quality at more competitive prices, the senior management should quickly sanction the move to work with them. They should also exercise agility in the adoption of new technological solutions that will bring more visibility to decision-making. Slow technological adoption means that a business will fall behind competitors. Remember, strategic sourcing can be a competitive advantage by delivering superior quality at the best prices.
Procurement managers appreciate that relationships with suppliers can no longer just be transactional. The sourcing team has to identify suppliers with whom it is possible to develop long-term value-based partnerships. These suppliers have to be a good fit in terms of culture, working methods, and quality, among other factors. A common approach is to consolidate spending so that an organization gives a significant amount of business to a vendor in return for favorable pricing. Signing long-term contracts is also another approach to negotiating better prices.
As the relationship with suppliers improves, partnerships can progress so that companies share future production plans. If an organization is planning to expand production, it informs the vendor so that the latter can expand its capacity to serve them efficiently. As a result, both companies grew. The same goes for collaborations to improve or standardize quality. Bigger companies can help smaller vendors to introduce standardization procedures.
Organizations are facing increased pressure to run sustainable operations. Consumers are making more conscious purchase decisions and are often willing to spend more money on sustainably produced products. Investors too are keen to put money into a business with regard to environmental and social sustainability as well as governance. As a result, strategic sourcing teams are charged with collecting information on the nature of operations of potential and current suppliers. When working with suppliers from multiple regions, the challenge lies in finding accurate information.
An important technology for the next decade in strategic sourcing activities will be artificial intelligence. AI holds the key to making more objective purchase decisions. With so many variables to consider, human decision-makers are prone to bias and fatigue that lead to suboptimal decisions. The solution is to build AI models to help make decisions on the best suppliers to work with based on the objectives at hand. This is one of the best solutions to minimizing supplier selection risk. AI is also currently being deployed to analyze supplier contracts, which are often bulky, to identify risky clauses for further interrogation.
ProcurePort Strategic Sourcing Tools
Strategic sourcing implementation depends on the nature of the tools that you have deployed. Reach out to Procureport for a free consultation on the right e-procurement tools for you. ProcurePort is the world’s leading provider of e-procurement software.