Six Strategic Sourcing Best Practices
By Hugo Britt | April 26, 2022
Have you ever been told that you need to think more strategically in procurement? What does it mean to be strategic, and how can you get there?
“Tactical” sourcing is typically short-term, reactive, hands-on, and transactional. Strategic sourcing, on the other hand, involves long-term thinking, preventative action, is tied to enterprise goals, leverages technology, and is focused on value-creation rather than cost.
Strategic sourcing best practices
While many sourcing professionals struggle to find the time to rise above the day-to-day purchasing “churn” to think strategically, a key goal of digital transformation programs in procurement is to automate as much tactical purchasing as possible. Another strategy is to outsource the tactical element (such as outsourcing your tail spend ) to free up the team to think bigger.
Here are Una’s top six tips for evolving from tactical to strategic sourcing.
1. Think long-term
Short-term thinking in procurement may help get the job done and even generate immediate cost savings, but it leaves no room for improvement or long-term value creation.
Long-term thinking means a long-term investment. In other words, you may not realize the value of investments such as procurement technology, team training, a process change, or supplier relationship management for several months. Ultimately, however, the rewards will be greater than any short-term lever such as aggressive supplier negotiation.
Another way to think of long-term thinking in procurement is to switch from a reactive to a proactive/preventative approach. By the time a disruptive event has taken place – for example, Chinese port congestion or a sudden steep rise in commodity prices – it is usually too late for procurement to do much about it. But planning ahead with long-term hedging strategies such as Just-in-Case supply management can keep business operations moving and create a competitive edge.
2. Continuous improvement
With constantly evolving skillsets, ways of working, and technologies, there’s no such thing as a “perfect” procurement function. Being strategic means taking nothing for granted and always looking for ways to improve. Is there a better tool to improve your spend visibility? Can the team become more Agile? Do you have the skills required to shift to a sustainable procurement model?
Remember, you can only improve something if you measure it first. Establish and track a set of procurement KPIs that are tied to enterprise-level goals and targets such as cost reduction, maverick spend reduction, supplier innovation, time to source, and more.
3. Looking beyond cost
Focusing solely on cost is not being strategic. Yes, there are times (such as the current period of inflation) when cost reduction takes priority, but strategic procurement professionals know there are several other factors to take into account.
This wider understanding of value includes:
- Total cost of ownership (TCO)
- Security of supply
- Social responsibility
4. Data-based decision making
Getting strategic in procurement means making better-quality decisions supported by real-time data. This requires collecting and analyzing spend data with the help of sophisticated spend analytics software.
Data in procurement will help identify cost savings opportunities, reduce risk, provide insight into spending patterns, increase efficiency, and forecast surges in demand so you can take preventative action.
5. Business strategy alignment
Procurement strategy should not exist in a vacuum. Every strategic initiative should be clearly linked to an overall business strategy. It’s a good idea to create an extra column in your key KPIs that shows how each procurement goal reflects an organizational goal.
The challenge is that business strategies can shift without warning as economic conditions or leadership priorities change, so procurement must stay nimble and avoid a set-and-forget approach to strategic goals. Conduct regular alignment checks to ensure procurement stays focused on the right things.
Keep a close eye on other major strategic plans in the business that will impact procurement, such as the people/hiring strategy and the IT strategy.
6. Building relationships
Being strategic with suppliers involves recognizing you will create more value in the long term than you will achieve by squeezing a supplier for short-term gain. Establish a Supplier Relationship Management program to improve quality of service, more timely delivery, increase customer satisfaction, unlock better deals, get better support, and save money.
Alongside suppliers, look for other parties to build value-creating relationships with. Partnering with a GPO will enable you to unlock the impressive power of volume purchasing to drive short-term cost savings alongside long-term strategic benefits including reduced risk, greater security of supply, and greater efficiency.
Get in Touch
Do you have questions about group purchasing? Wondering how a group purchasing organization works to save you money, time, and effort?
Una’s team of Sourcing Advisors is here to help. Contact us to learn more.