The digital age is upon us and is only going to evolve as we tread into the future. With the current ongoing COVID-19 pandemic, it has become imperative for organizations to embrace digital transformation. Every organization, big or small, global or local, must have digital transformation as one of their key objectives. So, what does this transformation mean for Strategic Sourcing as a function? Clearly, the existing processes also need to evolve with time. Strategic Sourcing has moved from traditional purchasing and now concentrates more on total cost of ownership (TCO). Strategic sourcing in today’s scenario means to:
• Source efficiently for the requirement on hand and plan further requirements
• Look for new suppliers for cost savings without giving up on high performing incumbents
• Award business to multiple suppliers instead of one to reduce risk
• Leverage digital platforms and skilled personnel as a replacement for offline medium
When an organization adopts the strategic sourcing approach, it not only focuses on ways to reduce costs but tries to find ways to add more value and benefits for the money spent. It also enables organizations to manage risks associated with suppliers and be prepared for it ahead of time.
Modern day strategic sourcing process entails steps that organizations must focus on to realize the benefits it can offer.
1. Spend Analysis
In order to spend carefully in the future, one must look into how they have spent previously. Organizations need to have complete visibility into their previous spend to conduct a detailed spend analysis. Data consolidation, cleansing, enrichment, classification and analysis are key steps in the process. Once the analysis is concluded, organizations will have real-time insights into spending patterns across different categories and suppliers. These spend categories must now be prioritized based on their criticality to the business. This step helps organizations reduce their maverick spending, identify opportunities and forecast better.
This step’s focus should be to understand why a product/service is being procured from a specific supplier. Organizations should evaluate and check if there is scope for improvement in the product/service or the same can be procured at a cheaper rate without having to sacrifice on quality. The idea should be to look for alternative suppliers to facilitate benchmarking with the existing ones. Once such opportunity areas are identified, the existing strategy needs to be altered. Sourcing strategy should be developed considering organization’s goals and requirements. After the requirements and goals are aligned, this strategy can be used to select the suppliers.
3. Sourcing Team
Along with digital platforms, skilled personnel and SMEs are vital to keep in check the strategic sourcing process. There can be different teams for different categories based on spend associated with it. The strategic sourcing processes are long ongoing processes and cannot be administered by a handful of category managers.
4. Supplier Selection
Once the sourcing strategy is in place, the next step is to consider the suppliers for an RFX or eAuction as required. Organization requirements and end goals should be clearly communicated. In the end, organization will be able to acquire product/service with improved cost savings and favorable terms for both supplier and organization.
RFX & eAuction Platforms: Paper-based RFX & eAuctions are a thing of past now. Many organizations have already moved on to digital platforms. These digital platforms save time and energy, and increase efficiency and collaboration. Not to forget that they also enable us to look into past events at just the click of a button and keep the strategic sourcing process steps transparent.
The information provided by suppliers (pricing, product or service specifications, terms & conditions, etc.) against RFX will enable the organization to evaluate them and select the ones with the highest cost savings without compromising on quality. Once the supplier is selected, the contracting stage will be initiated, and relationship will be established between the buyer and supplier.
5. Supplier Performance and Relationship
Strategic sourcing is a long process and does not end with supplier selection. To continuously reap benefits from the process, organization must also keep check on how the suppliers are performing by evaluating them at defined intervals. Are they aligned with organization’s digital transformation and sourcing objectives? Are they delivering the product/service as per contracted terms and conditions?
Supplier Relationship Management enables higher collaboration between an organization and its suppliers. It renovates the role of buyer-seller into business value partners so that both the parties can benefit from each other. Thus, the relationships formed are long term and enduring.
Modern day strategic sourcing enables organizations to be prepared for any approaching risks and disruptions by planning ahead of time. Awarding businesses to right suppliers with aligned objectives maximizes the performance and results in increased cost savings. Organizations are harnessing the power of Source-to-Pay digital solutions to optimize their sourcing activities. Are you?