Strategic Sourcing

What is Strategic Sourcing & Why is it Important?

by Doug Keeley

What is Strategic Sourcing?

The Procurement process which we refer to as Strategic Sourcing where Procurement identifies and creates value for their organization. This intricate series of business processes includes all upstream Procurement activities – Spend Analysis and Supplier Management/Category Management through to Sourcing projects and Contract Management.

Why is Strategic Sourcing Important?

If you have ever read an article about Procurement best practices, you know that a very small minority of teams are categorized as leaders and an equally small minority are considered laggards. That leaves the vast majority of companies and teams in the middle – and each one of them is working hard every day to be as good as they can given their current priorities, challenges and resources.

So what does a good strategic sourcing process look like?

The primary difference between Strategic Sourcing and “good” Strategic Sourcing is contextualized flexibility. Procurement must be able to apply the general principals in a way specific enough to maximize the value of each spend category. If Procurement follows a Strategic Sourcing process flow like a checklist, then all Sourcing projects will start and end in the same way. That is hardly optimal given the diversity of products, services and supply partnerships in place at most companies.

It is just as valid to sign a contract extension with an incumbent supplier as it is to run a full RFP and intensive negotiation process. The “good” differentiator is whether Procurement has the talent and tools to follow the spirit rather than the steps of the process, recognizing when the standard six steps will do and when less traditional methods are called for.

An Effective Strategic Sourcing Process…

1.Is a dynamic process led by informed and capable Procurement Professionals.

A process flow or framework becomes a crutch when Procurement Professionals either don’t know what else to do or don’t have enough experience with varied approaches to recognize the signals in a supply market or competitive landscape suggesting that an RFP isn’t the best way to maximize results. If there isn’t a category expert in house, then the Sourcing process starts with learning. Listening to stakeholders and suppliers and conducting independent research about the market will ensure a level of understanding and an ability to be creative that can’t be confined to a checklist.

2.Considers all of the ways to meet a business need rather than just updating the prices, quantities and terms of the past and carrying them forward.

In too many cases, Procurement has been conditioned to execute Sourcing projects like robots in response to a need expressed by the business. Sometimes, however, what people think they need is not what they actually need at all. Once again, up-front exploration expands the value proposition of sourcing. If there is an overarching objective rather than a rigid list of pre-set specifications, Procurement can consider and introduce other ways of meeting the need. That creates the opportunity to introduce new suppliers and pricing models, opening the door to greater efficiency and a true competition of ideas.

3.Understands all of the ways that a product/service does – and should – impact the business and applies varied strategies to maximize that impact.

Many of the opportunities to achieve “good” Strategic Sourcing have to do with up front planning and research. But Procurement can’t forget the downstream impact as well. Every solution has the opportunity to affect the business for the better – or worse. Failing to think all potential impacts  during the project can be detrimental during and after implementation. Not only does “good” strategic sourcing avoid costly and disruptive mistakes, it recognizes and incorporates ways that a product, service or supplier relationship can drive more value than would be delivered if procurement just checked the boxes and let the process dominate the project.

The best way of all for Procurement to ensure they are “good” at Strategic Sourcing is to do a LOT of it. Practice does make perfect, and each new constraint or change each person encounters becomes a tool in their toolkit for the future. Of course running as many projects as possible isn’t a reality without the right technology. Being able to kick off a project quickly, with input from stakeholders and incorporating multiple proposals from suppliers can be the difference between fine and “good”.

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Author

Doug Keeley

Product Marketing Manager

Prior to joining Ivalua, Doug spent 12 years with Directworks in Sourcing Consulting and Customer Success.  During this time, he managed consulting engagements, worked with customers to implement lean processes, and managed SaaS implementations for global manufacturing enterprises.  Doug has a B.S. in Marketing / International Business from the Pennsylvania State University and MBA from the University of Pittsburgh.  He is leading global marketing activities for upstream procurement.

You can connect with him on Linkedin

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