Strategic Sourcing: New Age Sourcing Technology To Optimize Costs

Introduction

Unlike the traditional sourcing process, strategic sourcing not just focuses on the purchase price of the material. Modern-day CPOs are keen on equipping their sourcing team with tools and resources to deliver the best value. Do you feel your company has settled comfortably with a limited number of suppliers? Get out of your comfort zone and explore strategic sourcing to optimize procurement cost, minimize supplier risks, and support ESG (environment, social, and governance) initiatives for a better procurement management system.

Why Is Tactical Sourcing Not Sufficient?

While tactical sourcing limits the number of suppliers you work with and helps with SRM, it is not ideal for your organization. No quantifiable data can be used for analysis to determine supplier value to the organization. Mentioned-below are some limitations of tactical sourcing:

* Missed Opportunities of Finding Competent Suppliers – By not looking for suppliers beyond existing ones, your organization misses excellent opportunities to find competent suppliers who bring innovation.

* Analysis And Collaboration Are Unviable – By focusing on just the procurement need at hand, your organization fails to achieve collaboration which may save procurement costs in the future.

* Eroded Value Due To Limited Scalability– By not expanding the scope of suppliers, your organization has to encounter significant risks and fall back on compliance standards.

* Increased Supplier Risk Due To Monopoly – By becoming more dependent on a limited number of suppliers, there is an increased supplier risk to the organization and erodes any opportunity for solid negotiations.

Embrace Strategic Sourcing To Achieve Rapid ROI

According to Gartner’s Magic Quadrant, businesses that used a procurement solution for automation reported an increase of 65% in productivity and enjoyed cost savings of up to 61%. About 74% of the businesses believed that strategic sourcing would benefit the business. E-procurement helps your enterprise better understand the supplier market and encourages supplier competition. It results in a flexible and adaptable procurement process that can sustain the entire supply chain.

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Steps For Strategic Sourcing

1. Identify and classify spend profiles
2. Develop a sustainable sourcing strategy
3. Analyze the supplier market based on business requirements
4. Request supplier information and use it to define selection criteria
5. Select suppliers and execute the contracting process
6. Measure and track supplier performance periodically
7. Implement supplier relationship management (SRM)

With procurement software, implementing these steps is as simple as clicking a button. The automation system enables enterprises to reach out to suppliers locally, regionally, and globally with the same ease. The integrated platform allows quick supplier onboarding with eRFx by getting supplier information quickly within deadlines.

How Large Enterprises Have Benefited From Strategic Sourcing?

Strategic sourcing is not a definitive process. Instead, it is an evolving process aiming to improve savings, risk management, value-added services, and resilience to establish better supplier relationships. Large enterprises use strategic sourcing as the process adapts to growing organizational needs.

* Optimization Of Total Ownership Cost

The purchase price is the sole deciding factor in choosing a supplier with traditional sourcing. However, large organizations need sophisticated selection criteria to analyze price and non-price details. During the scenario analysis, many questions can arise for supplier shortlisting. CSR mandates to support inclusion, diversity, and the environment can be implemented readily with a sustainable procurement system.

* Prevent Supplier Monopoly To Increase Resiliency

Buyers will always benefit from a competitive supplier market. With limited options, supplier monopoly is unavoidable. Large enterprises can quickly onboard new suppliers from various sources to develop a resilient supply chain and a robust sourcing process. In addition, enterprises can easily support eco-friendly, diverse, and minority businesses with strategic solutions.

* Encourage Supplier-Led Innovation

Shifting the power to suppliers encourages innovation among suppliers due to a competitive environment. Suppliers will be willing to offer value-added services to gain an edge over the competition. As a result, buyers will benefit from the sourcing process. Business innovations almost always result in a positive impact, and offering a chance to suppliers to innovate along with the business is helpful for large enterprises.

* Create an Optimal Procurement Solution

Strategic sourcing enables businesses to customize procurement decisions to business needs, invite creative bidding, and analyze more supplier bids. By focusing more on optimizing total procurement cost, the strategy will also help achieve cost savings for future procurement. It will also help limit value leakage with a strong focus on spend management.

* Improve Sourcing Productivity

Streamlining the sourcing process reduces the time taken for procurement and optimizes cost savings. Therefore, strategic sourcing leads to improvement in sourcing productivity. Since sourcing becomes a proactive process, opportunity identification and supplier selection do not remain static. By continuously analyzing scenarios and collaborating with procurement team members, business productivity can be vastly improved using procurement solution automation.

Summary

Mckinsey reports that an organisation’s financial success is 1.5 to 2.2 times more strongly correlated to the capabilities and culture of the procurement process than any other factors. By involving the stakeholders more in the strategic sourcing process, enterprises can align the goals of the procurement team with organization goals.

Procol provides a comprehensive procurement solution with emphasis on speed and scalability to automate the procurement cycle. Contact us to schedule a demo and deploy strategic sourcing to scale your procurement processes way ahead of your competitors.