How to Improve Your Strategic Sourcing Process

What Is Strategic Sourcing?

Strategic sourcing is a procurement strategy that focuses on buyer-supplier relationships and seeks to improve stability, provide value, and cost efficiencies by consolidating and enhancing the core competencies of the various stakeholders in the supply chain.

3 Steps to Improve Your Strategic Sourcing Process

Strategic sourcing is revolutionizing conventional procurement practices. With an increased consumer and supplier focus on quality and sustainability, businesses must look beyond the lowest cost option to the one that provides the most value in the long-term. What can a business do to enhance its strategic sourcing processes?

Examine Your Current Sourcing Process

A Request for Information (RFI) and Request for Proposal (RFP) are the typical processes for getting information and bids from potential suppliers. Businesses stand to lose money if their sourcing procedure is sloppy or obsolete. 

An RFI is the first step in gathering information about potential partners and can weed out all those who don’t meet the requirements. An RFI also lets suppliers know that the bidding process will be fair. An RFP should be detailed and comprehensive. It should explicitly set out what the business needs including product specifications, delivery and service requirements, pricing, legal and financial terms.
 
Potential suppliers should be compared to existing ones to identify any hidden costs or irregularities thus mitigate risk.

Identify Areas of Spend

One of the goals of strategic sourcing is to provide cost efficiencies to all supply chain partners. To do this, companies need to first identify the various areas of spend and categorize them. Once that is done, the company will then be able to identify the categories that have room for cost reduction. The aim here is to achieve the highest possible quality for the lowest possible cost. 

Perform Supply Market Analysis

As we have said, it is not enough to settle for the lowest cost denominator. Businesses need to carry out supply market analysis to better understand not only the suppliers available but also whether they have more or less leverage than you do in the marketplace. This information enables a business to adjust their negotiation and sourcing strategies.

Some of the components of this analysis are 

●    Availability of capable suppliers
●    Accessibility of supplier pricing information
●    Cost of switching suppliers
●    Government regulations that impact suppliers
●    Availability of alternative products
●    Product differentiation
●    Market growth rate
●    Your business’s prestige to potential suppliers
●    Your organization’s spend on the product

How Software Can Help Improve Strategic Sourcing

Strategic sourcing software greatly improves strategic sourcing processes by speeding up decision-making in procurement thus making the supply chain more efficient. The use of digital solutions also streamlines operations improving supply chain management and budget management. 

Digital procurement software automates data and enables its easy sharing thus enhancing transparency between buyer and supplier. Strategic sourcing is a shift in perspective for procurement. Such an industry disruptor can only benefit from the implementation of procurement software.

Want to learn more about software solutions for strategic sourcing? Check out what Demand Solutions sourcing management software can do for you!