- December 10, 2019
A Complete Guide to Strategic Sourcing
Procurement is an integral part of every business. Strategic sourcing allows you to empower your procurement team to satisfy these key business needs. If planned and executed well, strategic sourcing can save you money and create value. Utilizing the best strategic sourcing software should make this process even easier. The right software will increase your efficiency, save you time, and provide communication and information resources and tools to help you take your company to the next level.
Research and Analysis
Sourcing always begins with research. You need to know what’s available and where you can find it, but these are simply the basic items you require. Categorization is part of this step as well. The high-level categories are generally the same and includes direct, indirect, import, domestic, critical, and noncritical. Further details are useful as well, such as whether you’re looking at raw materials, finished products, and all of the specific services you require. This enables you to better visualize the data and begin mapping out your supply chain. Codes will also be applied to these various categories.
As you research and put together this initial information, you also need to analyze it. This includes a risk analysis, historical analysis for spending, and a market analysis. This may seem like a lot of information to sift through, and it is, but it’s vital as you move forward. You can’t put together an effective strategy without knowing where to begin.
Strategy and Processes
Once you have benchmarks in place for products and suppliers, you’ll begin developing a strategy and determining the best processes. This is arguably the most important part of strategic sourcing. Streamlined processes avoid redundancies and save you valuable time while preventing errors. An effective strategy should assist you in identifying opportunities and can reveal any blind spots or knowledge gaps.
The two most common models for strategic sourcing are five forces and the Purchasing Chessboard. With five forces, you consider industry competition, the possibility of new entrants into the industry, supplier power, consumer power, and the threat of substitute products. Together, this should aid you in determining the most effective way to deal with a supplier.
The Purchasing Chessboard focuses its attention on supply power and demand power. It uses 16 levers and 4 strategies to provide you with 64 different methods. This approach has the benefit of being incredibly adaptable and robust, which may be why it’s the main procurement strategy for many of the world’s leading companies.
Vendor selection and request for quotation (RFQ) are your next processes to tackle. Presenting an RFQ to existing suppliers can help to encourage competition. You should have your vendors narrowed down to a few select choices. As you negotiate and receive quotes, you’ll be able to narrow these down even further and make a decision.
Tools and Improvement
Don’t forget that your software is an effective and indispensable tool along the way. Some steps can be automated, and you should be able to crunch numbers and perform analysis periodically to continue assessing the data as it’s collected. It also grants you a fantastic communications network and centralized hub for information.
As you continue, review your benchmarks, consider your metrics for success, and look for ways to improve your processes and strategy. Even the best strategic sourcing software can’t do all of the work for you, although it does make it significantly easier. Contact CBX Software at 858-264-1133 if you have any questions of if you’d like to learn more about how the right software can enhance your procurement and sourcing strategies.