Strategic sourcing is a business process that seeks to improve the sourcing process by continually examining and re-evaluating purchasing activities. While sourcing is talked about a lot in business, strategic sourcing is one of the most important aspects of sourcing any business will face and must be thought of as much more than talk. It offers both promise and peril, but the competitive nature of today’s world makes facing it inevitable. Thus, every business needs to understand the process and how to go about it.
Advantages of strategic sourcing
Everyone in business knows how tough international competition is and how businesses must continuously improve their processes and keep costs down to survive. Sourcing out parts of any business makes sense for several reasons.
Flexibility is a major advantage. Markets and technology change faster than ever, and it is hard to adjust to those changes with fixed resources, labor and suppliers. Sourcing can reduce the need to make major investments and thus increases the flexibility to change course when needed.
Being able to concentrate on core activities is another advantage. Every business sources part of its functions to some extent. Being it buying supplies or labor, no business does everything in-house. However, there are disadvantages to sourcing out too much to include loss of control, the need to share information outside the company and potentially alienating good employees. Every business must find the optimal point for sourcing out its operations, and there is no level that works for every industry. While some may practice wholesale outsourcing in which very little is done in-house, this is not a model for many businesses.
Misunderstandings about strategic sourcing
Strategic sourcing is about a lot more than just cutting costs with suppliers. Simply seeking out the lowest possible bids for everything is a recipe for trouble. A major component of strategic sourcing involves looking for ways to work together with suppliers to find new ideas. These can turn can be used to continuously improve resource management and maximize efficiency.
To do this, strategic sourcing needs to include setting long-term goals to avoid focusing too much on the short-term bottom line. With these goals in mind, businesses are more likely to use both their in-house resources and those of their suppliers to their full potential.
Strategic sourcing processes
Sourcing out work requires bids from suppliers. Those seeking bids should remember that suppliers have their resource limitations. These suppliers are not likely to devote too much to the bid unless they think they have a real chance at winning the project. Therefore, it is important to approach suppliers in a way that shows true interest in their services to get their full interest and the best bids.
Do not disqualify suppliers simply because they do not have experience in the region. These suppliers may be willing to go lower than others just to get a toehold in the market. This can be especially true with foreign suppliers. Be it this or another reason, suppliers should never be rejected too quickly.
Offering incentives is particularly important in strategic sourcing. Those working on any project will likely be more dispersed with less of a direct connection to the company than they would be with in-house work. Therefore, incentives become more important to bring out their greatest work and ideas. With proper management style, people can still be brought together as a team that will bring out the best in them.
Managing strategic sourcing requires extra effort in avoiding bias. Human nature makes people susceptible to rejecting what they do not know and other assumptions that may not be based on fact. Continuously re-evaluating processes for the best possible solutions demands a great nimbleness and flexibility of mind to get the good adaptability in business. People need to constantly ask themselves if they have the unbiased mindset that allows them to explore all possibilities.
Constant assessment of market and world conditions can never be forgotten. Change now comes more quickly than ever. Businesses need to be working both internally and with their suppliers to be ready for them. With greater connectedness and worldwide sourcing, there is a need to understand how changes outside one’s immediate market might affect future business.
Developing negotiating skills is critical with strategic sourcing. Negotiations do not have to be an antagonistic process. Suppliers that understand what the purchaser is facing in its competition and needs to keep costs down will be far more likely to listen and make the best possible offer. The supplier should be made aware of its own stake in having the company it is supplying succeed. This can help bring out new ideas from the supplier too.
Change is coming faster than in the past and its rate is only going to accelerate in the future. This makes it more important than ever to take advantages of what strategic sourcing offers to continuously upgrade processes. Only the flexible, nimble and constantly improving are likely to survive.