The process of strategic souring aims to give companies continuous improvement to the buying process by consistently re-evaluating commodities, suppliers, purchasing practices and performance. It is a a key part of an effective supply chain management system and is a common feature in all industries from manufacturing organizations through to service companies.

The key stages of strategic sourcing

The strategic sourcing process consists of a series of activities. This commences with a thorough review of business requirements, what is being procured from the existing supplier base, gathering issues and performance data. This diagnostic information is vital to understanding what is required from the procurement function and what ‘tools’ are available to drive leverage and value.

Business requirement and existing supplier usage are typically scrutinized against what is available within the market, this includes the products and suppliers (often from various global sources) and risk and opportunity. A detailed understanding of each commodity is crucial in determining the appropriate business strategy.

Spend analysis is a crucial tool. Effective strategic sourcing relies on understanding what products are bought and from which suppliers. Too many businesses find themselves with fragmented supply chains where spend is not leveraged with the key to breaking out of the situation being knowledge of your spend.

Supplier appraisal techniques can be applied facilitating the filtering of suppliers in accordance with requirements such as compliancy or other criteria (e.g. QCD). This can then be developed into a preferred supplier list that can then be used for tendering purposes.

Once the initial diagnostic is completed a sourcing strategy can be developed. This will center on meeting the business requirement and take into account various criteria such as where items are purchased, supplier capabilities (from hard requirements such as being able to supply the product to soft requirements such as relationship and strategy), product strategies, Cost reduction targets etc with the next typical step being to conduct a tendering process for key commodities.

The tending process vary depending on the state of the supplier network (e.g. are existing contracts already in place). Contractorizing the supplier relationship will typically involve negotiation with existing contract holders and full tendering activities for commodities without long term agreements.

Once the supply structure has been established, its performance must be tracked and analyzed. Strategic sourcing will typically be involved in performance improvement activity and relationship management/development. Structuring the commodity supplier network will typically be a cyclical process in line with contract renewal with supplier appraisal and tendering being a common feature.

Looking For Optimization

A common goal of strategic sourcing is to achieve the business requirement whilst also ensuring that the business receives optimum value (whether monetary or strategic) from its supplier base. The best outcomes are the ones that offer the best overall solution, and not just with costs, but with taking all objectives (cost, quality, delivery, compliancy, sustainability etc) into account.

Once the supplier network is established strategic sourcing must ensure that an adequate handover to the tactical supply chain team (who will execute the operational buying processes) takes place. Having great suppliers can be severely hindered by poor purchasing processes!

Summary

Strategic sourcing is a common process. Through determining business requirements and selecting effective suppliers whilst applying effective performance appraisal and continuous improvement methods businesses can be rest assured that they are equipped with suppliers that are fit for business.

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