Strategic sourcing is the process of building your supply chain not with an eye to the lowest purchasing cost, but to the lowest total cost. It involves cultivating relationships with suppliers so that you can work collaboratively to find solutions to your production problems. It encompasses the entire procurement process, from specification to payment for and receipt of goods and services, and even including sourcing employees from an optimal labor market.
Implementing strategic sourcing can have a range of benefits for your company. It can lower costs, improve efficiency, and make your supply chain more resilient by mitigating supplier risk. It can even strengthen your supplier relationships and help them last into the long term. With the right digital solution, you can even gain a new level of transparency into your supply chain with detailed, real-time data. Let’s take a look at what strategic sourcing can do for your company.
Over the past several decades, logistics professionals have made an art form of just-in-time supply chain design. This carefully synchronized supply chain relies on the supply chain operating smoothly, so that logistics professionals can hold and ship just what’s needed at the exact time it’s needed.
Just-in-time supply chain design improves cost efficiency, at least upfront, because it minimizes the amount of stuff you have to purchase to keep the supply chain running. But it can cost more in the long run when there’s disruption in the supply chain. Strategic sourcing can help you strike a better balance. You can choose suppliers that offer maximum value, then negotiate lower prices for your high-volume buys. Procurement is carried out in a way that maximizes profits and gives you advantages over the competition.
In many companies, sourcing activities are still managed the old-fashioned way, with activities tracked manually via spreadsheets, emails, and phone calls. There are so many missed opportunities embedded in manual processes – for example, the opportunity to identify the best supplier offering the best price, or the chance to monitor the performance of your suppliers over time.
When you choose digital strategic sourcing, you can approach sourcing systematically. You have the chance to find the best suppliers, and get the best prices, by automating processes that compare quality, cost, customer service, and other key metrics across suppliers. Perhaps more importantly, sourcing becomes standardized, so you can boost efficiency in operations, standardized procurement processes, and stop relying on idiosyncratic methods.
Mitigate Supplier Risk to Improve Supply Chain Resilience
The more complex your supply chain, the more risk is inherently built into it. The longer your supply chain, the more risk is inherently built into it. With strategic sourcing, you can analyze your supply chain and eliminate sources of risk.
For example, you need to hedge against the risk of interruptions in business continuity due to supply chain disruptions. Strategic sourcing might have you bring sourcing closer to home, choosing more local suppliers so your supply chain isn’t so much at the mercy of geopolitical events or extreme weather events. You might implement multi-sourcing so that you can still obtain the supplies and raw materials you need even when one supplier is experiencing a shortage. You can institute cybersecurity protocols to protect your company’s and your suppliers’ valuable data. While you can’t completely eliminate supply chain risk, you can significantly mitigate it with strategic sourcing.
Offer Transparency Through Real-Time Data
If you’re using old-fashioned, manual procurement processes, you’re missing out on the chance to gain a whole new level of visibility into your supply chain and your sourcing. You can get real-time data about what’s happening in your supply chain, and that data can help you make changes that will improve efficiency and cut costs.
For example, you can use strategic sourcing digital tools to gain insight into the status of your strategic sourcing activities – see where you are in your various negotiations at a glance. Gain insight into what’s happening on your assembly line – how many products are failing to pass quality control checks and why? The answer could help you improve operations so that you’re making fewer duds. You could even collect data on your distribution network, gaining visibility into how long delivery drivers take to finish their routes, and whether there are faster routes available or even routes that could minimize shipping damage.
If your business isn’t using strategic sourcing to build supplier relationships and avoid supply chain disruptions, it’s time to start. With all that’s happened to global supply chains over the past couple of years, there’s never been a better time to implement strategic sourcing in your business.