It is no secret that for a company to guarantee its sustainability and future proof itself, it has to constantly evolve and innovatively seek ways of meeting the needs of the customer. This requires an effective procurement strategy.
In keeping abreast with the latest trends and understanding the benefits of maximizing efficiency through economies of scale, organisations have to nurture and value strong relationships. Strategic sourcing takes traditional procurement to another level. A level of collaboration with selected suppliers to leverage targeted spend across different locations and multiple companies to get the best price and value.
A major drive for strategic sourcing is in developing and sustaining buyer-supplier relationships to jointly reduce cost and create sustainable value for all parties, particularly the customer.
Implementing a high-value procurement strategy
Procurement as understood by many, is more tactical and short-term focused, aimed at getting the right price for the commodity sourced while strategic sourcing takes a more long-term relational strategic approach, governed by trust and joint value creation.
A good strategic sourcing plan enables innovation around relationship management and takes into consideration the entire cost of ownership, from acquisition costs to operating costs, and disposal costs. There are multiple steps companies may take in implementing strategic sourcing however, three over-arching elements include; identifying opportunities, performing a need analysis to establish gap-closure strategies as well as implementing a transformational plan.
Good communication also plays a key role in this process as it allows for improved joint continuous improvement initiatives between the partners. It is imperative to emphasise innovation around commercial models and technology as these have the potential to yield great rewards.
Download our case study to see how Illovo SA improved their service levels to over 99% with a smart supply chain. Their reduced turnaround times (connecting people to product faster), have helped them increase sales and grow their South African market share.
Creating value and overcoming challenges within the supply chain
Strategic sourcing is a continuous process that goes far beyond just the cost of a product or service. It assists companies in achieving efficiencies by cutting waste out of the supply chain for both parties. A power imbalance can threaten true collaboration between the sourcing organisation and supplier.
There always has to be a balanced relationship between the two parties to ensure a win-win scenario. When facing such threats, they can be managed through meticulous contract management relationship processes.
Choosing a supply chain partner: lessons learnt
The original intent of the relationship deteriorates when one party does something perfunctorily to save time or money. For instance, the supplier may have its best talent on the job at the beginning of a project, providing excellent service and innovation however over time the supplier skills base can degenerate and results in service levels dropping.
It is important to have people who have more than just a traditional procurement background or mindset. Practitioners should have a good general business understanding to assist in identifying potential value areas and understanding the supplier better.
When selecting a supplier, it is important to assess their references for the commodities or products they sell and check if there is a cultural fit between the sourcing company and supplier. Transparency is crucial, and a supplier needs to be transparent in the way they cost or put their products or commercial models together.
Moreover, a supplier needs to have in-depth industry knowledge, and there has to be shared values and also share the company’s ethical approach. The rewards of strategic sbarloworldourcing in terms of price, total cost, value creation, and innovation far outweigh the potential pitfalls which can be managed.