4 Steps to Developing a Strategic Sourcing Strategy for Procurement Success
Strategic sourcing and smart procurement can be synonymous when it comes to the topic of truckload capacity (and it’s what we specialize in at FreightFriend). However, when discussing the total supply chain, these terms take on a different meaning for shippers. Let’s take a look.
Defining Strategic Sourcing in the Supply Chain
Strategic sourcing is a procurement process that connects data collection, spend analysis, market research, negotiation, and contracting. It does not include the process of the actual purchase and payment for goods and services.
To develop a strategic sourcing strategy, a shipper must identify the spend profile of their organization. And they must work with their supplier base to ensure their business requirements are aligned.
Strategic Sourcing for Shippers
When a shipper creates a strategic sourcing strategy, it includes developing channels of supply at the lowest total cost, not just the lowest purchase price. It expands on traditional organizational purchasing activities to embrace all activities within the procurement cycle. Strategic sourcing strategy aims for continuous improvement and re-evaluation of the purchasing activities of your company.
In a production environment, developing a strategic sourcing strategy is often considered one component of supply chain management. Modern supply chain management professionals have placed emphasis on defining the distinct differences between strategic sourcing and procurement.
Procurement operations, including truckload procurement, support tactical day-to-day transactions such as issuing purchase orders to suppliers. However, strategic sourcing for shippers represents strategic planning, supplier development, contract negotiation, supply chain infrastructure, and outsourcing models.
Interestingly, the term "strategic sourcing" was popularized through work with a variety of blue-chip companies by a number of consulting firms in the late 1980s. This methodology has become the norm for procurement departments in large, sophisticated companies, including many of the Fortune 500.
Strategic sourcing can be customized to meet a customer’s specific needs. However, its main goal is to leverage a single, integrated system to enhance profitability.
Strategic sourcing best practices include: digitizing documents, participating in a digital business network, and automating workflows. (Interestingly, the same best practices apply when discussing strategic sourcing for freight brokers.)
Develop a Strategic Sourcing Strategy for Shippers in 4 Steps
The process is typically broken down into four steps:
Data collection and spend analysis: Spend analysis concentrates supplier data into one source. This lets organizations know exactly what’s being spent where and offers the opportunity to streamline vendors.
Supplier discovery and RFx: Sourcing becomes a strategic advantage when organizations can access supplier data through a digital business network. This allows them to request RFPs and have suppliers compete for their business.
Negotiations and contracting: Automated tools can speed workflows and simplify the digital signature process. In addition, they create an electronic repository of contracts where organizations can set renewal alerts.
Implementation and optimization: When sourcing is automated and digitized, organizations can move faster. Moreover, they build in feedback loops for continual optimization. Finally, they constantly evaluate suppliers to make sure they're getting the best sourcing agreements possible.
Modern Strategic Sourcing for Shippers
Typically, the modern version of the process combines the market assessment and cost analyses steps of the older model into a single market research step. Then, the supplier identification and sourcing strategy development steps are grouped into a single go-to-market step.
In other versions, negotiation has been divided into two steps — negotiation and contracting. This change is due to the increased importance of market intelligence in modern strategic sourcing plans. Its ability to deliver value improves both pricing and contract terms when leveraged against the identified suppliers.
Collaboration with Partners
For shippers, a solid strategic sourcing strategy views suppliers as crucial value partners and aims to build sustained, collaborative relations. The customer-supplier loop is assessed at every stage of its lifecycle to ensure that the needs of the companies are continuously and efficiently met.
To accomplish this, strategic sourcing strategy leverages spend analysis, supplier evaluation, supplier relationship management, and detailed market research. Therefore, strategic sourcing is a long-term process. For it to be successfully implemented, strategic sourcing needs skilled personnel and relevant technology platforms and tools.
Key Benefits of Developing a Strategic Sourcing Strategy
Now that the concept of strategic sourcing is clear, it is important to understand how it benefits you as a shipper. Why does it make sense for more organizations to develop a strategy like this? Here are some advantages.
Increased Level of Cost Savings
The most obvious benefit businesses will experience from strategic sourcing are higher levels of cost savings. Identifying and selecting suppliers that provide the highest value at the right pricing enables an organization to continuously achieve higher cost savings.
Better Alignment of Sourcing and Business Objectives
Aligning the sourcing activities of a business to its organizational goals and objectives is at the crux of developing a strategic sourcing strategy. Better alignment allows the business to achieve higher business performance with higher efficiency and minimal supply chain risks.
Optimization of Ideal Suppliers
In order to effectively implement strategic sourcing as a shipper, it is necessary to analyze your suppliers, their profiles, and core capabilities. Once this is accomplished, an organization is equipped with information that will allow them to match their business objectives to their ideal suppliers. This implies highest value creation at lowest possible cost.
Long-term Relationship Building with Suppliers
Strategic sourcing helps shippers build long-term relationships with their suppliers. By reinforcing the focus on the core capabilities of the suppliers and assuring the right suppliers for the right sourcing objective, strategic sourcing helps create a synergy between organizations and its suppliers. Sustained relationship with suppliers also implies that when suppliers are valued and considered in various sourcing decisions, they feel motivated to optimize their performance to meet the shipper’s objectives.
As you can see, there are many benefits to creating a strategic sourcing strategy as a shipper, especially in the form of driving relationships.
Just as relationships with suppliers are key to your organization’s success, relationships with asset carriers are equally important. For help with your relationships with carriers, visit FreightFriend to learn more.