Procurement strategic sourcing is one of the essential functions of any business that can directly impact its bottom-line performance. As per a recent study, many businesses spend over 60% of their revenue on purchasing goods and services from different suppliers.
With procurement transforming every day, it has become crucial for businesses to adopt better-aligned measures to reduce costs and improve the quality of the final product. Furthermore, various factors like technological disruption and political volatility have caused fierce competition within the market. Therefore, organizations need to adopt 7-step strategic sourcing in supply chain process to maximize procurement efficiency and improve their supplier performances.
Procurement Strategic Sourcing vs Traditional Purchasing: Key Differences
In simple terms, procurement is the overall process of obtaining goods and services, whereas strategic sourcing is a component of procurement with a long-term, value-focused approach. Here’s how they differ:
| Attributes | Traditional Purchasing | Procurement Strategic Sourcing |
| Timeframe | Short-term | Long-term |
| Aim | Focuses on obtaining goods at the lowest cost | Aims to maximize value and reduce TCO |
| Approach | Reactive, focused on addressing immediate issues | Proactive, focused on fostering long-term growth |
| Scope | Limited to purchasing | Covers the entire supplier network |
| Supplier Relationship | Transactional | Collaborative |
Key Challanges of Procurement Sourcing Strategy
Businesses must improve their supplier collaboration strategy and bring changes to the existing vendor relationship program. For example, procurement must explain what business needs are when opting for spend analysis. This would play a crucial role in lowering the long cycle and cost while conforming to the changing regulations.
At the same time, businesses must spend on visibility requirements. And, filter out data considering cost reduction. The sourcing team must understand the baseline of market data and cost rationalization for businesses.
Procurement must aim to lower the spend-related data from external and internal sources and determine better saving opportunities. Some of the common factors that can have a direct impact on the sourcing strategy include the following:
1. Addressable spend
Ensuring the entities bring in a better portion of the expenditure as available for sourcing is crucial. It can impact the sourcing strategy, thereby resulting in higher savings.
2. New enterprise strategy
Bringing changes to the existing enterprise strategy can help keep up with the sourcing demands. It will help in the realignment of strategies with increased proficiency in results.
3. Disruptive technology
Technology is changing every day. While aligning the sourcing strategies, businesses must identify what new and disruptive technology will create a bigger and better impact. It calls for a reassessment of services. More unique alternatives are easily available in the market, and the implementation of disruptive technology is essential for understanding the alignment.
4. Newer programs
While newer technologies will affect the business' sourcing strategy, implementing more recent programs can also make an impact. These newer programs influence procurement decisions and options, bringing growth for businesses.
Key Benefits of Procurement Strategic Sourcing
Organizations must work towards implementing strategic sourcing to get a more transparent approach to business. Some of the common benefits of implementing strategic sourcing for businesses include:
1. Cost reduction
Implementing strategic sourcing can play an important role in saving against higher costs. If an organization has identified and selected suppliers that provide better value at lower prices, it will be wise to work with them and save on business expenses.
2. Optimize ideal supplier
It is crucial to know about the suppliers, their work, and their abilities to ensure the maximum efficiency of an organization. Once businesses identify these basic things, they can work with their ideal suppliers - - helping create value for businesses at the lowest cost possible.
3. Alignment of sourcing and business needs
Sourcing activity alignment with business goals is crucial. It forms the basis or foundation of strategic sourcing. With better alignment, businesses can work towards achieving improved efficiency with lesser risk to the supply chain.
4. Foster a long-term relationship with the supplier
The trends of procurement are changing. Therefore, it is crucial to maintain a long-term and healthy relationship with the supplier. Strategic sourcing helps identify an ideal supplier and foster a long-term relationship with them.
Strategic sourcing helps to identify the core abilities of the supplier. Furthermore, this helps create a bond between suppliers and organizations, fostering a long-term relationship. Continuous updates and improvements are undertaken to optimize the performance of suppliers in various sourcing decisions to help meet organizational demands.
5. Lower supply chain risks
With the changing business requirements, meeting compliance standards is a must. However, due to the complexity of compliance, there remains a considerable risk in supplier relationships.
Information security is one of the most important factors to consider for businesses. With the world moving towards digitalization, sourcing can help improve the supplier business relationship, thereby focusing on protecting the data between supplier and manufacturer.
Closing Thoughts
Companies should adopt processes and technology that can drive efficiency and maximize visibility across the entire Strategic Sourcing spectrum of responsibilities. The sooner an organization addresses these critical processes holistically, the sooner they will achieve the benefits of having control of their spend strategy. Every company should be investigating ways to reduce expenses, increase efficiencies, and empower their business to operate with the tools they need. Strategic sourcing is the mechanism by which these goals can be achieved.
So, whether you’re a small startup with just a handful of vendors or a multinational corporation with a global reach – don’t hold off on procurement strategic sourcing. Policies and procedures adopted today will be the foundation of an efficient, cost-cutting supply chain in the future.
Are you looking to implement better strategic sourcing solutions for your business? Aavenir RFPflow can ensure the exponential growth of your business with a comprehensive data-driven approach. It’s time to create a robust strategy and drive reliable solutions while reducing the supply chain risks. Get in touch with one of our procurement and sourcing industry experts today.
Schedule a Demo today to experience how Aavenir RFPflow can streamline your sourcing process seamlessly.
