What You Should Know About Strategic Sourcing

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In the world of supply chain management, you need to be tactical and have a solid strategy to thrive. The supply chain can change from day to day and week to week. Some things, like the covid-19 pandemic, can put a dent in supply chain and logistics. Natural disasters, poor management, high costs, and more can be especially harmful when you’re building a sourcing strategy. Developing a better plan using strategic sourcing initiatives and implementing supply chain management software into your organization are ideal methods for improving your supply chain while simultaneously addressing possible risks. Here are a few things you should know about strategic sourcing.

Table of Contents

Strategic Sourcing Defined

It may sound like a buzzword or a phrase on the surface. Strategic sourcing is a fundamental concept in supply chain management. It’s all about developing supply chain channels while reducing overall costs.  The idea behind strategic sourcing is to create continuous improvements and regular assessments of purchasing throughout the organization. The process goes something like this:

  • It starts with looking at what the company is buying, where it’s buying it, and how much it’s paying.
  • Find out what the supply market is looking like and who’s offering what types of items to different companies.
  • Discover the cost of goods and services offered.
  • Search for potential suppliers who can provide what you need.
  • Negotiate contract terms.
  • Implement them into your supply chain.
  • Track and assess the results.
  • Rinse and repeat.

Once the process is in place, the purpose of strategic sourcing is to put yourself in a position to analyze, understand, make changes, and do anything necessary to improve your supply chain operations while simultaneously reducing costs across the organization. 

Prioritizing

The best way to prioritize is to use spend profiles and categories. Prioritizing helps managers adapt to resource scarcities and act quickly on any inventory, risk, or potential negative impacts. Using a combination of collaboration and analyzing different scenarios allows managers to gain valuable insight into where potential problem areas may lie while giving them the opportunity to prioritize what really matters most in real time. Moreover, prioritizing procurement helps you prepare for the unexpected, meet unexpected demands, and ensure viability across all operational aspects. 

Supplier Optimization

A significant and vital aspect of any sourcing is to find the best suppliers. A robust strategic sourcing plan provides opportunity alerts, artificial intelligence based planning, and full visibility into all of your spend. Optimizing suppliers by location, what they can offer, reputability, cost, ratings, and other vital factors is easily accomplished with a software solution for your enterprise resource planning (ERP). Want to classify spend into different categories? Automate routine sourcing events like bids and collaboration? How about making decisions quickly by leveraging mobile technology among your team and vendors? All of this is possible with a good comprehensive solution and worth exploring for streamlining your entire process.

Performance Metrics

Part of an excellent sourcing strategy is to understand how you’re performing. Key performance indicators (KPI’s) and benchmarks are essential tools to help you understand how well you’re performing across various metrics. It’s important to understand how well your strategic sourcing initiatives are going. KPI’s help you keep an eye on any spend, notice risk almost right away, and give you an idea of how to optimize your procurement and sourcing strategies. This works hand in hand with your strategic sourcing efforts to create a better overall solution to any problems that might occur during your analysis.

Risk Assessment/Management

As part of any comprehensive strategic sourcing solution, risk assessment is right near the top of items companies need to consider when building their supply chain and managing it. There are quite a few different types of risk that can plague a business throughout the supply chain itself. Whether it’s the third party risk from a disreputable vendor and delayed good shipments or natural disasters and unexpected market changes, staying on top of potential dangers is something any good supply chain manager will strive toward accomplishing. Using a combination of artificial intelligence and machine learning, good quality software solutions can help you assess risk in real time and make snap decisions based on available data. This is helpful to the overall sourcing strategy in that it will protect and insulate your organization from any supplier issues while also providing a solid basis for discovering any fraud and mitigating any third party risk.

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