Over the last decade there have been many debates about the importance of having an effective procurement strategy in place. It is nearly impossible these days to keep cash flowing smoothly without a well-documented strategy.We have moved on from the premise that the procurement strategy needs to cater only to the procurement function, now we realise that it has to cater to the overall business strategy and we need to make sure procurement’s goals are aligned with the business goals. Today, every organisation’s procurement strategy should be uniquely tailored to meet the needs of the business. Business goals can often change as they depend on a series of internal and external factors such as change in management, socio-political factors, resource availability, market conditions etc. In today’s economy these aspects are very common, which is why companies need to periodically optimize and update their procurement strategy and monitor its performance. Whether we’re talking about developing or optimizing your procurement or sourcing strategy the first step is sitting down and assessing what you have to work with. This should include assessing your overall business objectives, your pending projects, your available resources and suppliers along with your budget and timeline. A critical part of a successful procurement strategy is sourcing. We’ve touched the subject of sourcing multiple times before, talking about sourcing best practices and how category management is the next level of strategic sourcing, enabling companies to work towards achieving the business objectives. Today we want to talk about the sourcing process as a whole and how it helps companies deliver on their procurement strategy.
Just doing it vs doing it rightIt often happens that companies develop and implement a new sourcing strategy and they expect it to continue to deliver over time. If they don’t continually update and optimize their strategy the results it delivers will decrease overtime. Sourcing processes need to be resourced effectively and managed with the right expertise at the right time for them to perform. There is a huge difference between companies that have a process in place and those that continuously optimize their processes. The end results are obvious, constantly improving your sourcing strategy will uncover better saving opportunities, will achieve better compliance and overall contribute to improving the procurement strategy.
“Top performers achieve up to four times more savings. For mid to large organisations, this can represent millions.”
Benefits of sourcingHaving a strong sourcing process in place, that is aligned to business needs, ensures that procurement is a significant growth factor and value driver for the organisation. A good sourcing strategy helps procurement fulfil its dual role of supply and cost management, whilst also taking a proactive information driven approach to the buying process. On the other hand, neglecting your sourcing processes can actually create additional costs for your organisation, and could make you miss out on saving opportunities, reduce compliance, and have significant negative impact on your overall business performance. Now you are probably starting to see how it all ties in together… We believe that the more areas of the business that are excluded from the sourcing process the more saving opportunities are left unexplored. To make things even more clearer, here the most significant benefits a strong sourcing strategy can bring to an organisation:
- Achieve sustainable savings – strategic sourcing fosters a more sustainable view of business spend. It uses market data and insight into the company data which enables procurement to consider total cost of ownership, not just spend and savings. This creates a program that will help organisations continue to deliver savings over time.
- Improve supplier relationship and risk management – sourcing can help build meaningful supplier relationships, a process which can turn your suppliers into strategic partners that will hugely benefit both businesses, and hence lower the risk associated to those suppliers.
- Get more value out of your procurement function
- Help create a motivated procurement team
- Gain competitive advantage in the marketplace