Savvy businesspersons – no matter their title or role – understand that a successful business is not a stagnant one. In order to sustain any degree of success, one must be willing to constantly evaluate and re-evaluate their processes. This is certainly true in the processes of sourcing and procurement.
Strategic sourcing in procurement is the process for continuously re-evaluating one’s purchasing activities in order to lower costs and/or otherwise improve on the organization’s supply chain dealings and the management thereof.
“Strategic sourcing best practices are a key element on risk mitigation,” says Diego de la Garza, Senior Project Manager at Source One Management Services, LLC, in a guest post for SourcingInnovation.com. “They also help understand suppliers and establish collaborative links with them and other local entities that can help define a clear picture of the local market, the networks and uncover the opportunities that may have not even been considered in the first place.”
How do Chief Procurement Officers (CPOs) go about determining what works and what needs to be revamped in their process? In a guest post for Spend Matters, Brian Miller, Vice President of Services at Intesource, lends some thought:
CPOs have plenty of strategies in their sourcing toolbox to mitigate risk – taking the time to fully understand suppliers’ business operations, conducting regular audits, monitoring inventory, market and supplier performance, having a plan of action at the ready and diversifying the supply base. All of these tactics fortify the supply chain against the unpredictable and contribute to a well-rounded risk management program.
While every organization faces its own set of challenges in regards to sourcing and procurement, Miller argues that supplier diversification can be the key to sourcing innovation – and long-term success. Here are a few of the business objectives that supplier diversification can help to achieve:
More diversified supplier relationships mean more agility for reducing risk factors in sourcing and procurement. Having just one supplier for a sourcing category is a risky proposition. Should that supplier find itself dealing with a delay – or a cease – in production for any reason, procurement teams may find themselves scrambling to find new supply sources, struggling to fulfill consumer demand or contractual agreements.
In order to protect against the risk of production delays, sourcing and procurement teams need to better understand their marketplace and diversify their suppliers in each category. Doing so will also provide a greater visibility into the products, terms, and prices that the market offers, which can become quite the competitive advantage.
In our post on internal and external procurement management, we discussed the advantageousness for an organization to align their own initiatives with the views held by their suppliers. We also alluded to the competitive advantage that can be extended to both parties through the fostering of a collaborative relationship.
“The highest performing organizations understand that suppliers shouldn’t solely be suppliers – they should be partners,” says Miller. “Fully aligning with and treating suppliers as strategic business partners ultimately brings higher success rates, reduces risks and fosters innovation for both parties.”
Aligning with a varied group of sourcing partners will help to mitigate risk and open the door for new opportunities, including an entrance into new markets or a greater ability to maximize financial value.
Adds Miller, “Collaborating with suppliers and giving them the knowledge necessary to develop innovative value propositions that work for both organizations is critical for improving cash flow.”
For greater innovation, create a strategic, mutually beneficial relationship with your sourcing partners. For more on selecting your ideal suppliers, be sure to check out our post, “Before Partnering with a New Supplier, Ask These Questions.”