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Here’s What You Need to Know About Strategic Sourcing

By: Ryan Kidman


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Strategic sourcing is a procurement process that allows businesses to create value while saving money. It can really give your company a competitive advantage by letting you find ways to save throughout the entire supply chain. Strategic sourcing can also help you reduce risks, since it can help supply chain managers identify financial, supply, quality, and availability risks in your supply chain.

With a dedicated manager monitoring every category of spend, strategic sourcing can increase profits with every business cycle, because strategic sourcing best practices help your staff stay on the lookout for ways to reduce costs and increase value. Thanks to the technological tools available, your staff can automate much of the process, saving time for risk assessment, supplier relationship management, and spend analysis.

Your Supply Chain Needs a Governing Council

If you don’t have a governing council overseeing your supply chain, it’s time to get one. Company leaders, including executives, business unit managers, and the supply chain supervisors should be involved. Regular meetings provide a forum for communication across functions, so that business unit managers can provide supply chain leaders and other company leaders with information on upcoming projects and potential future plans.

The governing council can provide the support that supply chain staff need to align their goals with the goals of the company, ensuring that the supply chain organization can function to its full potential.

Modern Tools Can Take Your Sourcing to the Next Level

Category management software is crucial to strategic sourcing best practices. In order to implement strategic sourcing effectively, you need software tools that can help you tackle the huge market, category, and spend analysis tasks that lie ahead. It’s best to identify where your current analysis and sourcing strategies need improvement, and then implement a software tool or tools that meet those needs, rather than re-working all of your workflow processes around a new software tool that you hope will improve efficiency. When you identify what you need from a software tool first, you’re much more likely to realize the savings in time, effort, and money that you’d hoped for.

When you use category management tools to define your spend by supplier, you can start to see where you might have the most leverage by comparing your spend on each supplier to their revenue. You can also begin to identify which suppliers are most strategic to your business, and therefore post the highest risk if the supplier relationship deteriorates.

With up-to-date info on what you’re buying, who you’re buying it from, and how much it costs, you can keep tabs on whether the supplies and materials you’re purchasing can be gotten cheaper from somewhere else, and whether it’s worth the risk to continue — or start — with a specific supplier.

Supplier Relationship Management Is the Word of the Day

The strongest companies continue to work with suppliers closely even after they’ve hammered out a deal, because they know that strong supplier relationships, featuring back-and-forth communication between supplier and purchaser, are best for minimizing supply chain risk and keeping costs down.

Strong alliances with your suppliers can keep those relationships vibrant, allowing you to achieve value for both sides of the deal and providing productive avenues for conflict resolution. Performance objectives are easier to establish and measure, and supply chain improvement goals can be monitored, evaluated, and re-established on a continuous basis.

Think TCO, Not Purchase Price

When it comes to cutting spend costs, it’s easy to look at the purchase price of supplies and equipment and think that the buck stops there. But most products and services cost money to use, also — that’s why appliances come with bright yellow Energy Star labels and why most car buyers consider factors like gas mileage and upkeep costs when making a final purchasing decision.

Rather than take bids from multiple suppliers and go with the lowest one, the smart thing to do is to consider the total cost of their services when making a decision. For most products and services, acquisition represents about 25 to 40 percent of the cost of ownership.

The cost of acquisition may be paltry compared to the costs of any additional training or staff needed to handle the supplies or equipment acquired, maintaining goods and equipment, storing them, operating them, or transporting them. There may be other costs as well, such as the costs of environmental permitting, shrinkage, and quality control.

Strategic sourcing best practices can do a lot to help your company increase value while cutting costs. They give you the chance to step back and look at the big picture, analyzing spend across categories, developing supplier relationships, and more.

Don’t leave sourcing up to chance. Develop a strategy that meets your business needs, and put it to work for you.

Published: June 19, 2020

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Ryan Kidman

Ryan Kidman is a startup-investor and serial entrepreneur. Founder of Catalyst For Business and contributor to search giants like Yahoo Finance, MSN. He is passionate about blogging and covering topics like big data, business intelligence, startups & entrepreneurship. Follow him on twitter: @ryankhgb

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