“Strategic sourcing is probably the most important concept in our business. However, we have not yet dedicated an exclusive article to this topic, so now it is time to do so.
Strategic sourcing (strategic sourcing, which is part of our company name) is a process by which supply chain decisions are made with the aim of optimising costs.
In order to carry out a strategic sourcing process, the companies internal demand is analysed (what materials need to be purchased or even what additional services are required) and the company’s market position in relation to its competitors is established. Once this analysis is available, it is time to design a sourcing strategy.
Strategic sourcing = lower procurement costs?
Can we say that strategic sourcing is synonymous with getting a better purchase price for products? No. Strategic sourcing has a much broader global approach in which it is not only about reducing the purchase price.
The outlining of a strategy is key not only to optimising results, but also to sustaining success over time. In fact, one of the main differences between “conventional purchasing” and strategic sourcing is that the latter lays the foundations for a medium to long-term relationship between the company and the supplier.
In order to obtain the best conditions with suppliers, it is necessary to have a precise knowledge of both the global and local markets, which is why it is so important for sourcing companies to have human capital in all the countries in which they work, as is the case at S³ Group, which acts as a commercial bridge and has a team in different European and Asian countries.
Benefits of strategic sourcing
There are multiple benefits to lowering the final cost of production, not always associated with the price of the products.
- Improved alignment between business objectives and sourcing processes.
- Discovery of the most suitable suppliers
- Improved trust and communication with suppliers
- Reduced purchasing risks
- Improved commercial forecasting
- Cost savings (direct and indirect)
- Improved efficiency and opportunity for continuous improvement
In order to reap the full benefits of strategic sourcing, it is necessary to have a deep understanding not only of the business, but also of the complexity of the whole process, which requires a great deal of experience. In this regard, it should be noted that not all companies’ internal purchasing departments are capable of carrying out the implementation of a new sourcing strategy, which is why it is very common to outsource this type of services that go beyond supplier management.
The key steps of the strategic purchasing process
Carrying out the strategic sourcing process step by step is fundamental to achieve successful results. Let’s see, in a very summarized way, what each of these stages consists of.
Establishing categories
In this first step, expenses and needs should be analysed by category (of product, which can be one or several, depending on the company). It is necessary to be clear about basic data (quantity of products needed, typology, size, etc.), as well as consumption patterns.
Analysing the market
Once it is clear what is needed, it is time to start analysing the supplier market. It is important not only to know which manufacturers can offer you the product you are looking for, but also to evaluate their quality, availability and payment conditions.
Sourcing strategy
During this phase, prior to the selection of suppliers, it is necessary to define precisely how the purchase will be made, minimising risks and costs. In this sense, it is necessary to be clear about all the factors, not only the price, and to think about important details, such as the agility we want in the process or the hidden costs we want to avoid.
Supplier selection
Once we are clear about how we are going to improve the purchasing process, it is time to take the list of suppliers and filter those suppliers that meet all the requirements we have established in the previous step.
Negotiation with suppliers
During this stage, we will convene meetings to get to know and negotiate all the details of the future agreement between the selected suppliers. The progress of the negotiations will not lead to the selection of a supplier.
When the operation is between participants from very different cultures (such as European and Asian), it is very important to avoid communication errors that could jeopardise (or even derail) the agreement.
Monitoring and evaluation
To check how well it works, the new sourcing process needs to be monitored and evaluated. Using the right metrics (KPIs) in procurement management will allow you to compare your new strategy with the previous one, to see if savings targets are achieved and how to further optimise the process.
As we have seen, procurement is a complex process. If your company is thinking about how to improve negotiation with suppliers, reduce risks and cut costs, let a specialist sourcing team help you achieve your goals and increase your competitive advantage in the marketplace.