Introduction
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:
Total Cost of Ownership
TCO shows how strategic sourcing looks beyond the initial purchase price. It considers the total cost over the product or service's entire life cycle, including maintenance, warranties, and potential hidden expenses.
Supplier Relationship Management
Building and nurturing strong, long-term relationships with suppliers is central to strategic sourcing. It's not just about transactions; it's about establishing partnerships that bring long term mutual benefits.
Risk Management
Strategic sourcing assesses and mitigates risks associated with suppliers, market volatility, and geopolitical factors. By proactively addressing risks, organizations can safeguard their supply chains and drive efficiencies.
Here are some compelling reasons you should consider implementing a strategic sourcing process:
Cost Reduction
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.
Risk Mitigation
By evaluating supplier risk and implementing robust contingency plans, strategic sourcing helps organizations navigate unforeseen disruptions and maintain business continuity.
Improved Compliance
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
Supplier Collaboration & Development
Instead, determine which suppliers warrant your extra attention by asking these questions:
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.
Scalability
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.
Resource Optimization
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:
Identify Risks
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.
Analyze
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.
Getting Started With Una
GPOs aren't meant to replace a company’s procurement function. Rather, a GPO helps procurement expand the scope of its control and enhances its relevance to the organization.
Doing so generates hard-dollar savings in the selected categories but also enables corporate procurement to redirect freed-up resources to focus on other initiatives.
Beyond Strategic Sourcing
Are you a larger corporation that prefers to keep strategic sourcing for certain categories in-house? Una is able to help with non-strategic projects like tactical procurement, indirect or tail spend management, cost analyses, and more.
The beauty of a flexible Una membership means every member can use our resources as they see fit.
Membership Details
Una membership is completely free of charge. There are never any purchasing requirements and you’re never locked into contracts.
We provide an “in” so every organization can save big on the items they need, and follow up with resources that improve the sourcing process and deliver comprehensive savings solutions.
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👇
