How to Implement a Strategic Sourcing Process
A play-by-play manual showing how to implement a strategic sourcing process that aligns with your organization’s goals, optimizes spend, and creates long-term value.
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In procurement and supply chain, staying ahead of the game is not just a goal – it’s a necessity. Strategic sourcing has become a pivotal approach to procurement, offering a pathway to significant cost savings, enhanced supplier relationships, and optimized sourcing practices.
But we get it – the whole thing can sometimes feel like an elusive concept, buried beneath jargon and complex processes.
This playbook is designed to strip it down to basics, highlight what you need to know, and show you how to implement a strategic sourcing process that meets your goals.
Together, we’ll walk through the ins and outs of strategic sourcing, simplify its concepts, and arm you with the tools and knowledge you need to elevate your procurement strategy to the next level.
At the end of this playbook, we’ll also explore how partnering with a group purchasing organization (GPO) can be seamlessly integrated into your strategic sourcing approach, enhancing your ability to drive value and deliver results.
Let’s get started.
Understanding Strategic Sourcing
Strategic sourcing is more than just a procurement buzzword – it’s a comprehensive approach that can transform your organization’s procurement practices.
At its core, strategic sourcing formalizes the process of finding, assessing, and choosing suppliers. It’s a systematic and collaborative way to identify, evaluate, and optimize the acquisition of goods and services that meet your organization’s objectives while minimizing costs and risks.
Strategic sourcing takes into account a few key concepts:
Here are some compelling reasons you should consider implementing a strategic sourcing process:
Strategic sourcing, by optimizing supplier selection and negotiations, can lead to significant cost savings. This is achieved by leveraging economies of scale, minimizing waste, and ensuring competitive pricing.
Increased Efficiency & Innovation
Strategic sourcing can pre-qualify suppliers for future initiatives, which shortens sourcing timelines. Fostering collaborative supplier relationships will provide opportunities to innovate.
By evaluating supplier risk and implementing robust contingency plans, strategic sourcing helps organizations navigate unforeseen disruptions and maintain business continuity.
Compliance is necessary. Strategic sourcing allows procurement to find suppliers whose values and practices align with their company’s goals and help protect your organization’s brand equity.
Stronger Relationships with Suppliers
Working closely with suppliers should develop nurturing, meaningful relationships with both parties looking out for each other. Stronger relationships with suppliers usually pave the way for more favorable contractual terms, as well.
Market & Supplier Intelligence
Reviewing and analyzing procurement through market research informs strategic business decisions. It also helps procurement teams identify the most significant risk factors so mitigation efforts can be put in place.
Historically, procurement teams have focused on the tactical aspect of sourcing. In particular, they’ve zeroed in on the cost-cutting of their organization’s day-to-day transactions. This involves, for example, running competitive bids, e-procurement, issuing purchase orders, and overseeing invoicing and payments.
Strategic sourcing, on the other hand, is a holistic approach to developing supply channels that considers all activities within the procurement cycle to secure the best goods and services for the business.
Supplier relationships are nurtured, instead of focusing solely on transactions. Cutting costs is important, yes, but strategic sourcing aims to create value by considering factors beyond cost like quality, innovation, and sustainability.
Strategic sourcing also incorporates continuous improvement as an essential component, ensuring that procurement practices evolve over time with changing market conditions and organizational needs.
Preparing for Strategic Sourcing
In order for any strategy to succeed, it’s crucial to lay a strong foundation. Let’s explore what steps should be taken before implementing a strategic sourcing process:
Assessing Organizational Needs and Goals
Engage with key stakeholders within your organization to ensure company-wide alignment and support for procurement’s initiatives. Be sure to analyze and understand your organization’s spend data to identify opportunities for cost reduction and process improvement. Conducting thorough market research will help you stay informed about industry trends, supplier capabilities, and potential risks.
Building a Cross-Functional Team
Identify the key roles and responsibilities within a cross-functional sourcing team, and assemble the right individuals for the job. Explore strategies for fostering collaboration and communication among team members from different departments and backgrounds.
Establishing Clear Objectives and KPIs
Set clear and measurable objectives for your strategic sourcing initiatives, aligning them with your organization’s overarching goals. Identify the essential KPIs that will help you track progress, measure success, and drive continuous improvement.
Steps for Implementing a Strategic Sourcing Process
Strategic sourcing can usually be implemented and managed in five steps.
These steps can be repeated for each category of spend, and should be evaluated over time as the procurement landscape evolves:
- Business Review & Category Analysis
- Supplier Selection
- Contracting & Supplier Relationship Management
- Implementation & Execution
- Monitoring & Evaluation
Conducting a full business review and category analysis will provide valuable insights into your procurement category, suppliers, and associated risks.
Assess Business Needs & Goals
Most of this was likely done during your prep work, but double-check to make sure you’ve noted stakeholder priorities. These are constantly evolving and procurement needs to be able to move and adapt with them. Conduct regular and ongoing “alignment checks” to ensure procurement’s activity remains on-track.
Dive into the dynamics of the market associated with your procurement category. Explore factors like supply and demand, pricing trends, and market competition. Identify and categorize your suppliers and products or services into meaningful segments. This helps tailor your sourcing strategies to the unique characteristics of each segment.
Examine the landscape of potential suppliers for your category, identify existing suppliers, explore new ones while considering both global and local options. Develop robust evaluation criteria based on historical data and industry benchmarks to assess suppliers, like financial stability, quality, reliability, and sustainability.
Identify potential risks associated with your category and suppliers (think geopolitical instability, supply chain disruptions, regulatory changes, or financial vulnerabilities) and develop strategies to mitigate identified risks.
Identify possible vendors, compile your supplier contact list, and send out requests for information (RFI), requests for proposal (RFP), and requests for quotation (RFQ) as appropriate.
Understand the nuances of crafting RFPs and RFQs, including specifying requirements, terms, and evaluation criteria. Evaluate supplier responses objectively, considering factors such as pricing, capabilities, and overall alignment with your objectives.
Explore proven negotiation strategies and tactics to secure favorable terms and pricing from your selected suppliers. Understand the importance of fostering collaborative negotiations that lead to mutually beneficial agreements.
Go beyond initial purchase costs by factoring in all relevant costs associated with a product or service over its life cycle. Make informed decisions based on TCO analysis, ensuring long-term value and cost efficiency.
Consult with your legal team, include an NDA if necessary, and clearly outline KPIs and your reporting process. Work to build mutually beneficial relationships with suppliers.
Make sure key components of a strong procurement contract are included, like terms and conditions, pricing structures, and legal considerations. Finalize negotiations and create contracts that protect your interests while promoting fairness.
Performance Metrics and SLAs
Establish performance metrics and Service Level Agreements (SLAs) to track supplier performance and hold them accountable. Develop processes to ensure continuous improvement in supplier performance and quality.
Explore strategies for fostering collaboration and transparency with your suppliers, ensuring a more dynamic and responsive supply chain. Encourage supplier involvement in innovation and value creation activities that benefit both parties.
Time to see your hard work pay off! Stay ahead of any change management and training that may need to happen and make room for continuous improvement.
Navigate the organizational changes that may result from strategic sourcing implementation, ensuring smooth transitions and minimal disruption. Communicate changes effectively and provide training to employees impacted by the new processes.
Implement feedback mechanisms and systems for ongoing monitoring and improvement of your sourcing processes. Embrace change as an opportunity for growth and adaptation in an ever-evolving business landscape.
Measure the effectiveness of your sourcing strategies and ensure they continue to deliver value over time. Conduct regular audits and make adjustments as needed.
Key Performance Indicators
Select and track KPIs that align with your sourcing objectives, allowing you to assess progress and performance. Leverage data to make informed decisions and adjustments.
Supplier Audits & Assessments
Implement periodic supplier audits and assessments to ensure compliance, quality, and ongoing performance. Use audit findings to guide supplier development efforts and foster continuous improvement.
Continuously assess and mitigate risks to safeguard your supply chain and organizational interests. Adjust strategies and plans in response to changing risk landscapes.
Supplier Collaboration & Development
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. Ideally, every supplier relationship is treated strategically but we know this can’t realistically be the case.
Instead, determine which suppliers warrant your extra attention by asking these questions:
Will production or productivity grind to a halt if you suddenly lose that supplier?
Do your future plans rely on the goods or services provided by a particular supplier?
Are you “stuck” with a particular supplier because there are no alternatives?
Keep in mind that a strategic supplier is not simply a supplier with whom you spend a large amount of money. Strategic suppliers could also be those who provide goods and services that are critical to the success of your business.
Once strategic suppliers are identified, consider establishing a development program to help suppliers improve their capabilities and performance. Ask about the specific needs and challenges they’re facing and come up with plans that address those needs.
Offer training and support to enhance your suppliers’ capabilities, enabling them to better meet your requirements. Work closely with your suppliers to drive product and process innovation by encouraging them to share ideas and insights that can lead to new products, services, or process improvements.
Misconceptions About Strategic Sourcing
Despite its many advantages, there are several misconceptions about strategic sourcing that can hinder its adoption:
It’s Only for Large Organizations
Strategic sourcing can benefit organizations of all sizes. While larger companies may have more resources, smaller ones can still apply its principles to their scale.
It’s Just About Cost Reduction
While cost reduction is a crucial aspect, strategic sourcing encompasses a broader range of factors, including quality, innovation, and supplier relationships.
It’s Too Complex
While it may seem complex at first, the principles of strategic sourcing can be adapted to suit the complexity of your organization. It’s all about finding the right balance.
It Neglects Small Suppliers
Strategic sourcing can be inclusive of small suppliers through initiatives that promote diversity, sustainability, and innovation in the supply chain.
Organizations of all sizes can make a business case for implementing a strategic sourcing process. There’s a good argument to be made that the smaller your organization is, the more strategic you need to be. Every business decision should to be well-planned and supported by data – including those of the procurement team.
How a Group Purchasing Organization Can Help With Strategic Sourcing
Group purchasing organizations leverage the collective buying power of their members to obtain volume discounts from suppliers. Once you join a GPO, members are able to take advantage of pre-negotiated contracts and receive discounted pricing on the goods and services needed to run their business.
GPOs are in a unique position to help businesses implement a strategic sourcing process because of their industry experience, established supplier relationships, and portfolio of contracts.
GPOs do the legwork when it comes to finding and vetting suppliers, negotiating contracts, and building mutually beneficial partnerships with suppliers on behalf of their members. Once a member decides it’s time to strategically focus on certain categories, they can partner with a GPO to find the right supplier to meet their needs quickly and efficiently.
Because supplier contracts and relationships are already in place, it significantly cuts down on the amount of time and effort a procurement function needs to put forth in order to implement strategic sourcing.
Group purchasing organizations can also help with the other aspects of the strategic sourcing process, like determining your business needs and goals, analyzing your category spend, helping with change management, and evaluating a supplier’s performance to ensure your expectations and the contract obligations were met.
Learn more about GPO membership with Una 👉 How to Get the Most Value Out of Your GPO Relationship
Businesses of all shapes and sizes can thrive by adopting a strategic sourcing framework tailored to fit their needs. Here’s how they can do it with the help of a group purchasing organization like Una:
Data-Driven Decision Making
For many organizations, the number-one way to “get strategic” is through data-driven decision-making. As a GPO, Una can promptly and efficiently comb through your spend categories and identify which ones would benefit most from our portfolio of pre-negotiated contracts.
Risk Mitigation Expertise
By pooling their resources and buying power, members of a GPO can often achieve economies of scale that would be difficult or impossible to achieve on their own. This can help to lower costs and increase efficiency, which can ultimately reduce the risk of financial loss. At Una, we proactively play a strategic role in procurement planning to mitigate risk and ensure success for their members.
Procurement Expertise & Training
GPOs bring to the table a wealth of procurement expertise. Partnering with Una means you gain immediate access to a team of indirect spend management experts offering procurement and supply chain knowledge, category advisory, insight into spend data and cost comparisons, supplier relationship management, and more.
GPOs lend growing businesses their buying power to provide discounts on products they use daily. These cost savings can then be used to fund the things that really matter in a fast-growing business such as hiring more people, investing in tech, or ramping up marketing strategies. Fast-growing companies are time-poor, and simply don’t have the resources for lengthy contract negotiations or supplier relationship management. Outsourcing these activities to a GPO saves money, time, and effort that can be better spent elsewhere.
Lean procurement can be achieved through process improvement, process automation, and by outsourcing to a GPO. Utilizing a GPO as an extension of your procurement team can help streamline the purchasing process, save costs, and save time by eliminating indirect spend contract negotiations.
Supplier Diversity & Market Access
GPOs like Una have extensive networks of suppliers, which can assist businesses in meeting supplier diversity goals. These organizations provide access to diverse supplier options, broadening market reach and driving innovation.
Risk assessment and management is a huge part of strategic sourcing. Group purchasing organizations are well-equipped to identify and manage risks that could potentially impact business operations. The right GPO partner won’t just respond to the effects of risk, however. They should proactively play a strategic role in procurement planning to mitigate risk and ensure success for their members.
While we can’t speak to how every GPO operates, here are the steps we take at Una to help mitigate procurement risk for our members:
To start, we assist you in identifying potential risks. While complete elimination of risk is not possible, our extensive experience across various industries and procurement needs can help you better understand your areas of risk.
Establish a Strategy
Next, we collaborate with you to establish a comprehensive strategy. Once your unique procurement risks have been identified, it’s time to develop a long-term strategy for risk reduction. Our procurement expertise can help standardize the process for a cohesive strategy.
Implement an Action Plan
Then, we put your strategy into action and continuously monitor it. With a solid plan in place, it’s time to implement it and track your progress. Our members have access to cutting-edge technology and analytical tools, ensuring clean visible data for their procurement strategy.
Finally, we analyze your results and optimize for continuous improvement. By continuously monitoring your spending and evaluating competitive purchasing behavior, we help our members identify potential cost-saving opportunities and ensure that procurement runs as efficiently as possible.
Leveraging the collective purchasing power of a GPO will help reduce costs and improve the financial stability of your organization – ultimately creating a financial buffer against potential risk impacts. Una opens the door to a wider range of vetted options so you’re able to reduce your dependency on any one supplier, ensuring a reliable supply chain and minimizing disruptions in the event of a recession or other economic challenges.
GPOs like Una have strong, established relationships with supplier partners that are reliable and trustworthy, minimizing the risk of disruptions or supply-chain failures.
Check out our dedicated playbook to managing risk below👇
The Una Difference
Una’s mission is to empower procurement leaders like you to optimize your procurement strategy in a way that leads to increased cost savings, reduced risk, and better overall spend management. When you decide to work with Una, you’re choosing a partner in procurement.
Una works as an extension of your internal procurement department as an additional resource for efficient strategic sourcing and supplier and contract management.
Ready to Get Strategic?
Don’t fall behind or shy away from elevating your procurement game.
With the right resources in place, you can implement a strategic sourcing process that allows your organization to realize significant cost savings, benefit from enhanced supplier relationships, and optimize sourcing practices.
Contact the Una Team to get started and download the full playbook here👇