Strategic sourcing can play a huge role in the cost structure of any size business because it allows you to shop smarter when it comes to finding suppliers. There’s an emphasis on identifying long-term suppliers that can reliably provide the supplies and materials you need, in the volume you need, for the lowest possible cost.
The benefits of strategic sourcing extend beyond reducing costs, though. You can reduce supply chain risk by using strategic sourcing initiatives to stabilize your supply chain. You’ll be able to operate more efficiently, and you’ll ultimately cultivate stronger, more beneficial relationships with your suppliers.
Stabilize Your Supply and Minimize Supplier Risk
You need a stable supply of raw materials and other supplies in order to stay in business. A strategic approach to sourcing allows you to build stronger supply partnerships with more reliable suppliers. You’ll be in a better position to identify defect rates and take action to reduce or eliminate defects in your raw materials and in the products you manufacture.
Often, strategic sourcing will lead to supplier consolidation. That means getting more of your supplies and materials from the same source. If you run a restaurant, for example, you might get all of your vegetables from the same supplier. Consolidating suppliers allows you to strengthen your relationships with them as well as reduce costs.
Often, strategic sourcing is just a fancy way of saying shopping around for the best price. Strategic sourcing allows your organization to negotiate the best prices, especially for high-volume purchases. Negotiating a lower price for your goods allows you to pass on the savings to the consumer, but paying less for your supplies also benefits the supplier, because it means they’re able to sell more of what they produce.
Strategic sourcing doesn’t just apply to raw materials, either. You can also use strategic sourcing to obtain services that help your business run more smoothly. For example, you can outsource non-core functions, like payroll. It’s usually cheaper than paying for in-house HR, and frees up your time and that of your employees so you can focus on the core functions that make your business special.
Operate More Efficiently
Many companies have plenty of room to shore up sourcing activities and make them more efficient. Typically, the best solution for strategic sourcing is an automated one. You’ll no longer be relying on the memories of your buyers, email trails, and convoluted spreadsheets to manage your supplier relationships and negotiate supply contracts.
Instead, you can streamline the sourcing process, bringing it all under the umbrella of close company oversight. You’d be surprised how much business value you can add simply by monitoring the performance of your suppliers and implementing an actual process to govern supplier management and development. When you automate sourcing activities and implement company-wide guidelines for supplier development and sourcing, you can approach lowering supply costs and selecting optimate suppliers in a systematic way that increases efficiency and gets more mileage out of your supply budget.
Enjoy Stronger Relationships with Suppliers
Procurement management is a complex dance that involves not just choosing the right supplier, but building and maintaining strong relationships with that supplier over the long term. The right supplier will work with you to make your manufacturing process as seamless as possible. You’ll be able to hone in on a supplier’s core competencies to not only choose the best suppliers but also choose those suppliers that are most likely to become long-term business partners.
Strategic sourcing with an eye toward forming strong supplier relationships is more than just finding a supplier and negotiating a contract. It will also need to include a plan for keeping tabs on the performance of your suppliers and providing feedback to help them better serve your business needs.
An emphasis on strategic sourcing that continues throughout the supplier relationship gives suppliers the tools they need to be better collaborative partners – they can use feedback to improve any shortcomings in their service, as well as a continuing focus on those areas where their service is strong. You’ll have access to the performance data you need to make better supplier choices in the future, and both you and your suppliers will be better equipped for success in the supplier relationship.
You shouldn’t approach sourcing for your company without a plan. Strategic sourcing has so many benefits for your company, and for your suppliers, too. Bring a strategic sourcing plan to your company, and be pleasantly surprised by how much more efficient and cost-effective your sourcing processes become.