Many businesses acknowledge the advantages of sourcing in low cost countries. Increasing numbers of executives see the writing on the wall, and can no longer ignore the fact that sourcing in low cost countries can reduce labor costs and give them access to robust manufacturing facilities. This is why procurement consulting that allows a business to initiate a strategic sourcing plan is becoming an increasingly appealing option for many businesses.
What is Strategic Sourcing?
Strategic sourcing is a process by which firms can organize and continually analyze their procurement and purchasing decisions. The term procurement refers to the process of negotiating and agreeing to the terms and conditions of buying goods from another organization. Sometimes procurement can involve bidding, or other means by which competitive options are explored when making buying decisions.
Often included among the items negotiated during the procurement process are shipping and handling costs, mutually beneficial contract terms, and possible future price fluctuations.
Importantly, a strategic sourcing plan does not just look at the purchasing price of goods and services. Instead, it includes a holistic view of each aspect of the procurement process to inform strategic decisions.
That means a strategic sourcing plan looks at each part of the procurement cycle, including procurement planning, requirement definition, tendering and sourcing, evaluation and selection, contract award, and contract management. This is different from past sourcing strategies that looked more singularly at purchasing price without taking the other aspects of the procurement cycle into account.
The first step in implementing a strategic sourcing plan is to look at the company’s current spending. Next, leadership must assess the market of suppliers. Total costs for each supplier should then be calculated to conduct a comparative analysis.
Ideal suppliers are then identified, and it’s at this time that leadership begins to create a sourcing strategy. Next, negotiations with suppliers are finalized, and a new supply chain is implemented. Finally, leadership tracks progress and continually reconsiders the approach so that the company can remain flexible and adjust as needed.
Strategic sourcing is becoming a higher priority for organizations in many industries, and even the government is implementing strategic sourcing plans, as explored by this piece from the Washington Post.
What is Sourcing Optimization?
After a strategic sourcing plan is implemented, the process of sourcing optimization takes place on an ongoing basis. The term sourcing optimization refers to the analysis of all procurement inputs, often with the use of complex mathematical algorithms to come up with ways to optimize the sourcing and procurement process.
Cost is only one of the factors considered when implementing a sourcing optimization strategy. Among other things considered include the impediments to changing suppliers, the accessibility to other possible suppliers, and any opportunities to improve quality or adjust quality control processes.
Cooperative Sourcing and Sourcing Business Models
Some companies are exploring innovative sourcing business models when implementing a strategic sourcing plan. Cooperative sourcing normally refers to an arrangement in which companies form a partnership with other companies that have similar business objectives. Because each cooperating company can use the procurement resources of the others, it can often lead to lower costs of each company that participates.
Other alternative sourcing business models include the basic provider model, the approved provider model, the equity partnership model, the vested outsourcing model, and the managed services model. Each of these models have their own structures and idiosyncrasies and they represent some of the options explored by procurement consultants.
What is Procurement Consulting?
As is now probably evident, the task of creating a strategic sourcing plan is often complicated and multifaceted. It’s for this reason that many firms turn to procurement consultants with extensive expertise and knowledge of the different sourcing business models to explore, and navigate them through the different steps in the procurement cycle.
Procurement consulting services can vary depending on the consultant company leadership chooses to work with.
Procurement consultants can help firms assess their current costs, analyze the pros and cons of possible suppliers, conduct competitive analysis of suppliers, negotiate contracts with suppliers, and implement a strategic supply chain.
It’s a service that’s sorely needed for many companies that lack the know-how and connections to suppliers in low cost countries needed to implement a successful strategic sourcing plan. Organizations from a variety of industries are turning procurement consultants, and even some Universities are seeking out their guidance, as explained by this piece by the New York Times.
To learn more about implementing a strategic sourcing plan and connect with a procurement consultant, contact us.
