Tips to Amp Up Your Strategic Sourcing

Sourcing refers to the method in supply chain management, which consists of gathering and employing information for purchasing strategies so that vendor contracts are implemented efficiently. This is a direct approach to procurement that allows you to structure the process of gathering information so that your organization buys the best value for money that aligns with your goals. Strategic sourcing is long-term and requires ongoing market analysis to identify goals with constant checks on sourcing activities.

The difference between strategic sourcing and conventional sourcing is based on the costs. The older way of sourcing tends to purchase items at the cheapest price, whereas the strategic sourcing process is focused more on maximizing productivity and providing the overall best value. While traditional procurement is known for focusing on huge quantities and getting discounts from the prices of large purchases, strategic sourcing mainly focuses on three main aspects, including the analysis of business spending, market conditions, and identification of a supplier base that can be driven with data. Aligning these components helps you to build strong sourcing strategies that correspond with your objectives. It also allows for a risk reduction evaluation of suppliers' control processes and includes the possibility of continuous improvement by regularly reviewing the sourcing process.

Steps in the Strategic Sourcing Process

Strategic sourcing helps you to reduce direct and indirect costs and mitigate risk and delivery disruption, and it is done by following a 7-step process that is given below:

• Step 1: Assessing Internal Requirements: Start by defining where the major spending in your organization is done. Based on this, you can also classify these as domestic or international, essential or non-essential, and immediate or delayed spending. It helps in managing upcoming risks and gives sourcing a priority.
• Step 2: Researching Supplier Market: Now that you know your internal requirements, what you need to do next is supplier research. The focus of this research is to find the previous track records of your current or potential vendors, plus their presence in the competitive market and probable opportunities and risks associated with them.
• Step 3: Gathering Vendor Insights: To confirm the vendor information collected in the above step, you need to ask suppliers for RFPs, RFQs, and RFI. Also, you need to specify your business needs in detail so that vendors can give you the required information. This information is then gathered and compiled into a master list for reference and comparison.
• Step 4: Developing a Strategic Sourcing Plan: From all the information you gathered, choose which strategic sourcing processes would best suit your organization. Know the goals of your company and the strategies known to work in the industry. This will include such things as goods and services plus costs and expected delivery times.
• Step 5: Supplier Evaluation and Negotiation: Use the data to scale suppliers and see who are good fits for your business. Work with your procurement team to narrow down the list according to certain selection criteria. Arrange your final list, then negotiate terms with each vendor to get the best deal and once you have secured this, seek approval from relevant departments.
• Step 6: Monitoring Supplier Performance: The next step is vendor performance monitoring in line with your business interests. This also means the sharing of feedback by other departments on the quality of products/services delivered by vendors and how they could enhance it with constructive criticism.
• Step 7: Fostering Supplier Relationships: Ultimately, having a Supplier Relationship Management (SRM) solution can drastically improve the way you deal with suppliers. SRM develops an environment that is favorable for partnerships because it makes both parties achieve their goals and create additional value than a normal buyer-seller relationship delivers.

Strategic Sourcing Benefits

Well-structured strategic sourcing can bring your procurement strategy in line with the operations of suppliers, providing long-term cost-saving opportunities coupled with numerous other business benefits. We will see some of the most significant advantages that you can get by strategizing your sourcing:

• Save Costs: Implementing a clear sourcing strategy can give your company savings, by allowing you to highlight current costs that can be optimized. It is by gaining better insights, understanding your stakeholders' needs and conducting industry research before any request for proposals. Strategic sourcing, therefore, is key to cutting costs in different areas.
• Risk Management: Good strategic sourcing will get you the right suppliers and keep you from bad partnerships. By examining various suppliers, you get to know their specialization, contingency plans, and channels of communication. This data will also help you understand risk in terms of finance, quality tech support, and supply chain. 
• Continuous Improvement: The strategic sourcing process includes continuous review and development so that you can discover growth areas and benefit from them. The constant feedback helps you better recognize market opportunities, upgrade your business model, and stay ahead of the competition.
• Build Longer Collaborations: Strategic sourcing helps you avoid the long and exhaustive RFP process. Building long-term, strategic relationships with your suppliers will save you time and research because of the trust you have for one another and alignment with your goals.

Strategic sourcing makes sure that your organization can buy efficiently and strategically as a process-oriented approach, including not only the justification of internal spending but also market research and ongoing supplier relationship analysis. The 7-step process can minimize your costs and risks and maintain the best relationship possible. The advantages of strategic sourcing are massive cost savings, better risk management, and constant improvement, which results in long-term relationships. Adopting a strategic sourcing mindset will allow you to focus on making informed decisions that are in step with the broader objectives of your business and its ability to be successful.

Strategic sourcing is a critical component of the process and cost optimization efforts in procurement which yield enormous savings. Procurement Resource is a leading platform that helps buyers and sellers with proper sourcing solutions and saves time for both parties. With our supply chain intelligence, you can obtain in-season trends and supplier performance. Our procurement analytics help you analyze spending while surfacing savings opportunities to improve procurement efficiency. Also, our category insights will provide up-to-date market trends and data that will assist in making decisions around your goals. By using our sourcing, you can take steps toward leading your organization in continuous improvement as well as building better supplier relationships.

Author

Aditi Bisht (Associate Business Analyst in Procurement Resource)