6 Elements of Strategic Sourcing

 

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 Tactical Sourcing

“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:

  1. SPEND 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.
  2. DEVELOP YOUR 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.
  3. 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.
  4. NEGOTIATION  After receiving initial bids from qualified suppliers, negotiation begins with a conventional or online process that helps secure the optimal price.
  5. IMPLEMENTATION  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 etc.
  6. SUPPLIER MANAGEMENT  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.

Advantages of strategic sourcing

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 with a strategic team, which has provided improved outcomes for our clients.

 

 

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One of our core values at Red Herring is being a business for good. This means that we raise money by donating 10% of all fees earned to the Multiple Sclerosis Society. After a recent diagnosis, this cause is close to our hearts and we are proud to support the UK’s leading MS charity that provides practical help today and the hope of a cure tomorrow for everyone living with multiple sclerosis (MS) nationwide.

Over 100,000 people in the UK have multiple sclerosis (MS). It’s unpredictable, and different for everyone. It’s often painful and exhausting, and can cause problems with how people walk, move, see, think and feel. It can make it hard for people to work, and do the things they enjoy. But it doesn’t have to be this way.

The MS Society is a community of people living with MS, scientists, campaigners, volunteers and fundraisers. We understand what life’s like with MS, and we support each other through the highs, lows and everything in between. And we’re driving research into more – and better – treatments. For everyone.

Together, we are strong enough to stop MS.

To find out more about MS please visit: www.mssociety.org.uk