Learn the 7 Steps Strategic Sourcing Process used by Procurement Veterans
Posted by Fazal Sayyed
Cautionary spending may make or ruin a firm. It is an age-old core principle for finance and procurement professionals. What is new is how they determine what constitutes prudent expenditure. As organizations adjust their focus to lowering costs while increasing efficiency, the procurement team's primary worry is now how to produce results. Strategic sourcing is the answer for many.
What is strategic sourcing?
Strategic sourcing is a procurement strategy that considers the entire value supplied through a supplier relationship rather than the cost of the service or product offered by the provider. The technique is a component of supply chain management that focuses on customized solutions and strategic partnerships.
What is the importance of strategic sourcing?
Strategic sourcing integrates everything—supplier studies, industry trends, operations, and supply chain expenditures—and enables firms to implement flexible strategies. Furthermore, it gives a clear framework with vital information to assist firms in identifying potential hazards and cost-cutting options.
What distinguishes strategic sourcing from procurement sourcing?
One of the primary distinctions between strategic and procurement sourcing is that the former prioritizes vendor relationships and risk reduction, while the latter prioritizes contract signing.
The seven-step strategic sourcing approach devised by A.T. Kearney has withstood the test of time. It has been embraced as a best practice worldwide, with various changes. Although the primary goal of strategic sourcing is to save money, other important benefits include improved supplier performance and risk mitigation. The deployment of technological solutions at crucial stages in the process has considerably helped strategic sourcing efforts.
The following procedures will yield the greatest results:
1. Profile Category
Define the source category or commodity clearly. What are the current numbers or types of services being sourced, as well as their sizes? Who are the customers? Where can I find them? What logistics are employed? And who else is a part of the supply chain? Spending visibility is required to understand the category and the commodities within it. Data must be sorted, cleaned, analyzed, and approved before being used.
2. Examination of the Supply Market.
Following a thorough internal analysis, you must conduct a thorough investigation of the supply market to identify opportunities, risks, and potential suppliers. As part of your market analysis, consider key cost drivers such as raw material, labour, import/export, shipping, and so on.
3. Select the sourcing strategy.
Following that, you must develop a strategic sourcing plan for your firm. This will take into consideration the goals, objectives, timetables, and requirements of the company. Direct purchase, acquisition, and strategic alliances are all possible options (see below for an explanation of each). You will also need to create a communication pathway as part of the strategy development process to ensure that all key stakeholders have full insight.
4. Select a suitable sourcing process.
It's time to take bids! The Request for Proposal is the most prevalent strategy used by many firms (RFP). If you're not acquainted with the word, an RFP is a document that solicits offers and is frequently used in a bidding process. It is created by an organization interested in obtaining a product or service from vendors for their project. The document describes the specifications, requirements, pricing breakdown, legal and financial terms and conditions, and assessment criteria for a product or service.
5. Negotiate and select suppliers.
The fifth and last stage is to choose a provider. You'll be able to identify which supplier is the greatest fit for your company based on the previously defined criteria and the information acquired from your RFQs and RFPs. This process also involves any final pricing discussions. In many circumstances, corporations manufacturing in other countries hire third-party procurement experts to guarantee they obtain the best bargain.
Inform the chosen supplier, or suppliers, that the contract has been granted, and begin implementing the strategic sourcing strategy created previously. This will entail discontinuing any existing vendors and maintaining clear, open communication between the organization and the providers.
Once the product or service is integrated, the process does not finish. The third essential to good strategic sourcing is to track your outcomes. The most effective approach to managing your sourcing strategy is to use procurement software with automatic reporting features, which allows you to effortlessly analyze budgets, expenditures, and supplier performance and give yourself a clear picture of how much value your suppliers provide to your organization.
In conclusion, it is worth remembering that in today’s unpredictable times of global crisis caused by the coronavirus, global political leaders and international corporations have started noticing the disadvantages of globalization. The main disservice of the globalized world is the enormous dependence on a few low-labor cost countries as the main source of raw materials, components, and even finished goods. Most analysts believe that the future years will be marked by "deglobalization." This necessitates a larger emphasis on strategic sourcing in order to locate the ideal sourcing partner today. Strategic sourcing is critical to both short and long-term supply chain management plans.