Strategic Sourcing

Is your procurement group executing the type of supplier sourcing that is helping your company manage costs?

Executives today expect results. Procurement is expected to help the company meet ‘targeted’ profits in addition to providing an uninterrupted supply of materials. The strategic sourcing process for materials plays a major role in your company’s ability to accomplish this objective.

Every year hundreds of companies save billions of dollars through advanced strategic sourcing initiatives. Just like Ford Motor Company, or Apple, Inc., your company can perform in the same manner using sourcing programs and analytics to gain ‘hard dollar’ savings.

Furthermore, you can start achieving these kinds of ‘returns’ as soon as you put these processes to work.

Strategic Sourcing Initiatives

The strategic initiatives begin with the company’s senior management and their business objectives. Once these objectives are known, the company can develop their strategic sourcing initiatives.

Levels of the Strategic Sourcing Process

There are different levels and complexity involved when conducting the strategic sourcing process. However, in most instances the product sales strategy is a primary driver of the strategic sourcing model.

As your company grows, the models can become more complex and can have more than one objective, e.g., in addition to the right purchase price the company may need a ‘dock-to-stock’ quality program or a ‘just-in-time’ delivery process to reduce carrying costs. Not all suppliers may be able to provide these programs right away. It also may be that the product itself is very complex. Whatever the case may be, the sourcing model should provide for the need or needs at hand.

When conducting a simple sourcing initiative for a single commodity or category, it isn’t always necessary to do a lot of research on suppliers other than certifying the supplier using your basic ‘supplier approval’ process.

When the products and supply models become more complex, and as situations change, you may want to include more robust business sourcing rules. You may also have product families and commodities (or purchase categories) that require additional consideration.

Likewise, there may be a need to include more requirements if your firm is looking for sustainability, legislative compliance, and corporate responsibility.

Unlocking the ‘Hidden’ Savings

There are several fundamental steps to be taken when developing a successful sourcing strategy. These steps can help your company release the ‘hidden’ savings in the supply chain. The steps include data capture, software applications, and analysis.

Data Capture. At the center of each opportunity is the data that the company collects for use in its decision-making processes. Understandably, data collected must be accurate, complete, and applicable.

Software Tools. It is important to have the right tools when analyzing data. These tools make the job easier and less time consuming. For data management, the more that information can be formatted and sequenced, the easier it is to interpret the data. There are many analytical tools and processes available that can readily interpret data to help your company make good business decisions.

Analysis. Knowing what to do, and how to do it, makes a big difference in business. Some of the analytical techniques used include,

    • Forecasting and Demand Management Review
    • Spend Analysis
    • Cost Analysis
    • Value Analysis
    • Cost Reduction Analysis
    • Global Sourcing (Low Cost) Modeling
    • Hybrid Procurement Modeling

The Bottom Line

Executives expect results, and Procurement can help the company make ‘targeted’ profits. The strategic sourcing initiatives plays a major role in your company’s ability to accomplish this objective. Likewise, there are several fundamental steps to be taken when developing a sound sourcing strategy and ‘unlocking hidden savings.’ These steps include data capture, software tools, and analysis.

Related Topics

Sourcing Strategies. There are five different levels of sourcing strategies that companies typically transition through. Throughout these stages, there exist cost reduction and cost management opportunities. For more on this topic, please follow this link.

Supplier Sourcing. It is important that the company pay fair and reasonable prices for these products and services. The need for ‘better than market’ pricing can depend heavily on the development and execution of the company’s supplier sourcing strategies. For more on this topic, please follow this link.

Procurement Strategy. Successful companies satisfy customers with their products and services, making ‘targeted’ profits while doing so. Because of this, the procurement group is expected to play a much larger role and bring value to the entire business enterprise. If you’d like to learn more about procurement and supply chain management programs, please follow this link.

Manufacturing and Supply Chain Services

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