July 19, 2022
Four Ways Strategic Sourcing Can Help Your Organization
The current supply chain situation has been getting a lot of press lately. Unfortunately, not in a positive way. The global supply chain is in significant turmoil, and ill-prepared companies are at substantial risk. A Strategic Sourcing department can help mitigate those risks and set a company up for success.
Two years ago, FTI introduced a Strategic Sourcing team that has helped us evolve the way we procure products and allowed for a change to how we do business as a company, improving our service to our clients.
The Difference Between Procurement and Strategic Sourcing
While many companies have a procurement department, a smaller number of companies have a strategic sourcing team. Strategic sourcing is a function of procurement, but there are some differences. Strategic sourcing connects data collection, spend analysis, market research, negotiation, sustainability and contracting, while procurement is more tactical and is the act of obtaining goods and services.
Strategic sourcing is a long-term approach to aligning the purchasing strategy with business goals. In turn, the procurement strategy will allow for the lowest total cost of ownership, minimize the risk to the supply chain and provide better decision-making and more negotiating power.
Four Benefits of Strategic Sourcing
1. Cost Savings – Who doesn’t love to save money? While decreasing costs may not be feasible in these inflationary times, controlling increasing expenses may be. By utilizing category managers who focus on specific commodities, you can ensure proper focus on the appropriate items centered on fact-based data.
In addition to year-over-year and cost avoidance savings, process improvements will allow your company to do more with less while not adding a burden to your workforce.
2. Risk Mitigation – Along with understanding which commodities are your company’s most significant spend and should get the most attention, it’s equally important to understand which commodities are your company’s Achilles Heel or pose the highest risk. Understanding potential risks and having a plan to overcome them is critical to protecting a company’s supply chain. A well-thought-out commodity strategy will identify those risks and have identified potential solutions. Additionally, the sourcing team keeps an eye on national/global events so that they can react promptly.
3. Increased Efficiency/Better Utilization of Resources – One of the best ways to save money is through process improvement to increase efficiency and eliminate waste while ensuring that you are effectively managing your resources.
There are two key ways to do this. The first is to improve your procurement processes, driving standardization and efficiency. Improving your internal processes will allow you to add bandwidth within your team to focus on other tasks that will drive value for your company.
A second way to do this is to utilize your supplier relationships to help drive efficiencies. Suppliers typically have a wealth of knowledge and may offer skillsets that would allow you to use your resources more effectively. Your supplier may be able to help you outsource work you are currently doing at a lower cost, allowing your labor force to focus on more value-added work. Additionally, they may help you identify more efficient ways of accomplishing the work.
4. Improved Supplier Relations – As with any relationship, a supplier relationship should be mutually beneficial and will need nurturing and attention to thrive. The right supplier will provide you with the customer experience you are looking for and exhibit a corporate responsibility that fits with your company culture. Additionally, they will help ensure contract compliance, reduce costs, mitigate risk and drive continuous improvement.
Is your company utilizing a Strategic Sourcing department? If not, you may consider expanding your Procurement group to include one.