Procurement leaders are increasingly trapped between concurrent pain points. Factors like inflation, economic uncertainty, geopolitical conflict, and the climate crisis all conspire to create an increasingly challenging landscape. At the same time, the demands placed upon procurement to cut costs and mitigate risk are increasing. Not only that, but CPOs are also expected to be drivers of digital transformation, ESG reform, and strategic innovation within the business.
The answer to this juggling act may be the adoption of strategic sourcing.
What is strategic sourcing?
Strategic sourcing is the practice of marrying digital tools with the procurement process—especially when it comes to selecting and managing suppliers. Procurement functions that engage in strategic sourcing engage in finding, evaluating, and choosing suppliers which meet the company’s needs. It takes a longer view than traditional sourcing, which focuses on reducing the cost of products or services. Instead, strategic sourcing focuses on driving efficiency within the supply chain over the long term.
That doesn’t mean that strategic sourcing will result in a reduction of revenue or increased costs. The strategy takes a longer view, and can lead to more significant cost reductions over time, especially—as noted by Gartner analysts—when supplier agreements result in “mutually beneficial outcomes.”
A more collaborative approach to supplier relationship management
This collaborative approach to supplier relationships leads to new opportunities for value creation for both parties. Not only this, but a more strategic relationship is more able to mitigate risks than a more transactional relationship.
Organisations can more effectively collect and analyse data by concentrating supplier information in a single repository. As a result, organisations can more precisely track expenditures, creating the opportunity to optimise and potentially streamline vendor relationships.
Supplier discovery can be enhanced by accessing supplier data through a digital business network. Deployed correctly, this empowers organisations to request proposals more easily and foster competition among suppliers. Utilising automation to accelerate workflows, simplifying the process of collecting digital signatures, and establishing an electronic contract repository with renewal alerts can all streamline the strategic sourcing model.
Lastly, the automation and digitisation of sourcing processes allows organisations to operate more swiftly. This then helps create feedback loops for continuous improvement, and allows CPOs to consistently assess suppliers to ensure the most favourable sourcing agreements. The benefits only compound over time.
