Recently, I heard the following from Diane Swonk, Grant Thornton’s chief economist, on Marketplace: “Supply chains are being disrupted.” Your favorite sources – be they in Toledo or elsewhere – have always had your back, but they can’t always anticipate coronavirus, trade wars, and natural disasters.
However, when you have a global supplier network at your fingertips, you can tap into other resources to ensure that critical materials still arrive at your doorstep, especially if your guy in Toledo, for any number of reasons, simply can’t deliver.
Strategic sourcing is the smartest way to save.
In addition, it’s good to be able to get the goods, but it’s even better when you save time, money, and hassle in the process. Nevertheless, if you are operating without a strategic plan for automating, streamlining, and tracking your sourcing activities, it’s likely that you’re spending more than you should.
By accessing a supplier network, you can:
- Positively impact your profits by preventing stock-outs and keeping new product introductions on track
- Secure best-value deals for all your purchases, including both indirect and direct materials
- Eliminate slow, paper-based processes
- Eradicate costly, unplanned, unmanaged spend
With the right solution, you can spend more strategically and save with more certainty. Organizations that source this way, in fact, cut costs by an average of 39%.
How do you source this way?
Like everything you do in procurement, there is a process to strategic sourcing. And give or take a few nuances, that process typically looks like this:
- Identify savings opportunities
- Apply the appropriate category strategy
- Create a sourcing event
- Analyze and optimize supplier responses
- Negotiate and manage contracts with trading partners
Executing that process consistently well takes an automated solution that frees you from spreadsheets and other unrelenting paperwork, plus the hours and human errors that accompany manual processes. With this off your desk – and with a proven plan for smarter sourcing – you’ll improve the cost, quality, and performance of your supply chain and, therefore, your entire business.
There are a few common-sense rules to follow as you plan your plan. Make sure any strategic sourcing solution you choose can support them.
Don’t spend more than you need to. If this rule is so obvious, why do so many well-meaning procurement professionals ignore it? They continue to use paper-based “solutions” and a scattershot approach to sourcing which, without fail, leads to surprises, shortages, and greater expense. The solution you’re looking for supports the entire strategic sourcing process – pointing out where you can cut costs, simplifying supplier selection and responses, and negotiating competitive contracts. The result? You spend significantly less.
Follow best-practice (and far more efficient) procurement operations. Whether you’re buying chairs, procuring direct materials, or commanding a complex services procurement program, your sourcing solution should help you develop an organized, optimized plan for each and every sourcing event. It should be based on current best practices (and adapt to evolving best practices) and enable you to define sourcing phases, tasks, milestones, and team members. Companies with this type of solution in place have achieved 69% compliance with contracts.
Increase the effectiveness of your sourcing program and category functions. This one is all about working well together, and your solution should provide a centralized “workspace” where project teams and suppliers can collaborate and share documents. It should also offer version control, comment capabilities, and the ever-important audit trail. These things may sound simple, but every little thing that boosts effectiveness boosts productivity. Organizations that have mastered this typically see 17% higher spend under management.
Integrate categories. Building a profitable, competitive supply chain is difficult when you’re trying to source direct and indirect materials separately or on a disconnected system. To bring it all together, find a solution that easily integrates with your ERP and allows you to manage the entire source-to-contract cycle in every category. This level of strategic sourcing, along with industry best practices, results in a better supply-chain collaboration process for your direct materials.
Stay on top of your sourcing activities. With the right solution in place, you can easily compare suppliers; you can trust that you’re making informed decisions, and you can be sure that every purchase and everyone is in compliance. You’ll have dynamic dashboards that enable you to see and track the current status of all your sourcing activities. And you’ll be able to communicate with suppliers in real time — from instant messaging to actual bidding.
Track your savings. You need to be able to measure your success, so your solution must be able to analyze estimated, negotiated, implemented, and actual savings across regions, time periods, departments, suppliers, and spend types. That’s a lot of numbers to look at, but if you want to know where you stand on spending and, more importantly, savings, your strategic sourcing solution has to do the work.
Strategic sourcing can slash cycle time – as much as 50% – and cut costs. It can reduce workload from procurement to IT. It can help expand your trade around the world, breaking language and currency barriers. When you have a solid, secure sourcing plan, you can cut risk out of the equation.
That’s a plan you want to have in place because your guy in Toledo is not infallible.
Learn more about “Strategic Sourcing for Midsize Businesses.”