Strategic Sourcing – Foundation for Supply Chain Success
Reduce costs and increase bottom-line impact by repositioning your Purchasing Dept.
All organizations source something, whether it be materials to use in manufacturing, outside services, labor, consumables or other items that are purchased. With most organizations, the spending for what is purchased is a major (or even the primary) portion of total expenses.
Most companies do a decent job of executing orders, receiving and paying the bills. But what about the sources that are used? Is deciding where to buy from and how to buy a matter of just “getting it done,” or is there more thought put into the decision-making process?
Companies that are “strategic” in their spending have a decided advantage over their competitors who do not think that way.
What’s your view of Purchasing?
Companies that DO NOT pursue Strategic Sourcing:
- See Purchasing as just a service to ‘get stuff.’
- Don’t understand what benefits a capable purchasing organization deliver.
- Have ‘functional silos” and can’t or don’t want to create a culture of collaboration.
- See Purchasing as just a department spending money.
Companies that DO become strategic about what they buy:
- Realize that every $1 saved in the purchase of goods and services has the same bottom-line impact as about $10 of incremental sales.
- Overcome the consequences of poor quality due to purchases and minimize lost business because of it.
- Avoid struggling with spiraling cost increases, decreasing profitability.
- Reduce material shortages, impacting manufacturing and the services they provide to customers.
So what is Strategic Sourcing?
Strategic Sourcing goes by many names: Strategic Purchasing, Strategic Materials, Global Sourcing, or Purchasing Excellence. For our purposes, we’ll use the term “Strategic Sourcing” and define it as “a disciplined, systematic process for reducing the total costs of purchased materials, goods, and services while maintaining/improving levels of quality, delivery, technology and service/administration.”
The attributes of Strategic Sourcing include:
- Purchased goods and services
- Material flow and management
- Supply chain performance
- Cross-functional collaboration
The steps to becoming “strategic” about what you buy include:
- Evaluate and improve your organization and personnel
- Develop your metrics and goals
- Design/format and gather data and information
- Analyze and prioritize your opportunities
- Identify and implement quick hits
- Develop your strategies and action plans
- Execute and measure results
- Review and update your strategies and action plans
With our next blog, we will explore each of these steps in more detail, and lay out a high-level roadmap for you to follow. Let us know if you have any specific questions along the way!