If you work in procurement or finance, the
chances are that you’ll be looking for creative ways to reduce costs and assure
service and product quality. Strategic sourcing is
one method that managers can use to
help achieve these goals.
Strategic sourcing is the continual process of measuring,
evaluation and improving the purchasing activities of a company. It is one of the most powerful tools that purchasing
professionals and businesses have available to bring significant bottom line
results to a company.
Rather than taking a reactionary or fulfilment approach to purchasing,
strategic sourcing takes a proactive, data-driven approach. So why aren’t more
organisations employing this technique to office supplies purchasing?
Although essential for business, often office supplies are
seen as a tactical commodity. However today office supplies is about so much
more than pens and paper – the category encompasses a huge range of products and
services, from personalised print to furniture and facilities supplies.
The bottom line is that true strategic sourcing takes
considerable resources to carry out. Resources that the charities, law firms
and businesses we help simply don’t have.
Strategic Sourcing vs
“We need 100 A4 pads, let’s find the best price,” versus
“Last year we needed 100 A4 folders in Q4. Here’s what we spent on it. Let’s
review how many we will likely need for the year. Let’s negotiate the best
price and ensure the same quality and value.”
Strategic sourcing achieves efficiencies by formalising the
way spend information is gathered, analysed and factored into the procurement
process. By nature it considers factors far beyond the cost of a product or service.
Driven by experience, evidence and fact, strategic sourcing eliminates the
potentially high cost of emotion-based procurement decisions.
This approach allows us, on behalf of our clients, to secure
the best value in the marketplace as
well as long-term sustainable pricing.
6 elements of strategic sourcing
To implement a successful strategic sourcing plan in your
business, it’s important to understand the key elements:
ANALYSIS In the initial data-gathering phase, pull together information on your
past, current and anticipated needs; historical spend data; plus realised value
and ROI of products/services purchased.
STRATEGY This involves deciding where to buy while minimising
risk and costs. The strategy will depend on what real alternatives there are to
the current supplier, how competitive the supplier marketplace is and how open
the users are to a new supplier.
QUALIFICATION This stage of the process combines your strategy above with
information gathering on potential new suppliers. Once potential suppliers have
been identified, it’s time to assess their quality, service, reputation,
capabilities and price.
After receiving initial bids from qualified suppliers, negotiation begins with
a conventional or online process that helps secure the optimal price.
Ensure that any new supplier is fully involved in the
implementation process. Communications to all relevant stakeholders will
include any improvement to products or services, changes in delivery or pricing
Often this last step is the hardest to stick to for time-strapped teams. However
strategic sourcing formalises the process of assessing supplier performance,
and helps ensure they are consistently fulfilling agreed targets or KPIs.
Strong management of suppliers incorporates a scoring
process to measure specific performance areas such as product quality, delivery
time, customer service and more. Additionally, regular supplier meetings help
to forge long-term relationships, improvement plans and address any issues.
While strategic sourcing can prove time-consuming for small teams, the rewards
are numerous. Outsourcing to firms such as Red Herring can help you to gain the
benefits, without bringing additional workload to your team.
Increase profit – Every pound the company saves in procurement goes directly into
the P/L bottom line. Strategic sourcing regularly looks for savings, providing
the company with a competitive advantage.
Manage risk – Strategic sourcing requires all suppliers to be assessed. Each
existing supplier is evaluated for risk of quality, supply and finance. Once identified,
you can take action to avoid or mitigate the risk.
Improve sustainability – Strategic sourcing should not be a one-time
project or initiative; it is a continuous cycle. Dedicated category managers
(or outsourced consultants) will review spend and supplier performance. Over
time data and experience will bring more opportunity to gain value.
Gain value – Strategic sourcing does not mean the cheapest, quickest price.
Every action is reviewed against your strategy, e.g. does it provide more value
at the same cost? Does it reduce operational costs? Will it improve efficiency?
If you are looking to reduce costs or improve service, identifying
the best supplier is important. However, there is more to strategic sourcing. We always aim to build a positive and long-term relationship by working
closely within a strategic team, which has provided improved outcomes for our