This is a six-part series unpacking the stages of true strategic sourcing.
The means to achieving success in the procurement world have drastically evolved over the years and now hinge on one’s ability to strategically source. Modern businesses demand optimal supply options for the best attainable value from a holistic standpoint. Merely analyzing price or top level attributes is no longer enough to separate from the competition.
At the recent Spring 2017 Prime Advantage Conference, Lisa Reisman of MetalMiner gave a Metals Outlook presentation on how procurement should approach the metals market and all of its fluidity. Reisman contends that most forecasters are notoriously inaccurate and that metal production and consumption numbers are largely useless to metal buying organizations. These numbers aren’t very actionable and fail to correlate to the timing of purchases. The chances of hitting a bullseye when prophesying based off of these figures is extremely small.
Strategic sourcing can make or break your business and finding the right suppliers will require research, meeting with the vendors, and even a certain amount of trial and error. In order to foster the best strategic sources more quickly, there are some general steps that will outline the path to follow:
I used to have a roommate who thought he was a really savvy shopper. He'd come home with a 50-count bag of frozen chicken breasts because "it was such a steal." But I always thought the purchase was quite short-sided because he only focused on the volume he was getting for his buck, completely ignoring total cost of ownership. Time and time again I'd watch him throw out much of the uneaten chicken, because um, who in their right mind has the stomach for 50 frozen chicken breasts? How's your price per unit now buddy? Not to mention it wasn't fresh meat so he was consuming an inferior product. And he was ignoring the amount of energy being gobbled up by that behemoth bag in the freezer, as well as how that space could have been used for something else.
Refining strategy is a never-ending process. Once you get a project, a relationship, a product line to lift-off, there will always be room for improvement and opportunity to tinker with its underlying strategy. When it comes to sourcing, sure we may be getting the job done, but are there areas that can be enhanced or further developed? We don’t just want suppliers who meet requirements or who are merely “good enough.” We strive for true partnerships, mutual benefit and shared skin in the game. We want vendors who can help take us to performance and end products that smash our goals and expectations. So, how do we get there?
People in procurement use the phrase "strategic sourcing" frequently. It means using a fact-based approach for optimizing an organization's supply base to improve the overall value proposition. With this definition in mind, let's walk through some traditional procurement behaviors to see where they may be lacking the strategic component.
If you desire more innovation from your suppliers, you need to be willing to knock down your walls and collaborate to make this happen. Supplier Relationship Management (SRM) is a journey where you set the course. There needs to be a solid organizational reason to pursue a deeper connection with a supplier. Understanding this goal before you start your process is the key. However, you don't want this type of relationship with every supplier. Many suppliers just need to deliver the product at the negotiated time. The suppliers in this category solely need to be held to the agreed upon metrics to be deemed a success.
So said Karl B. Manrodt, Ph.D. of Logistics and Transportation at Georgia Southern University, at the Prime Advantage 2015 Fall Conference, held in Glendale, AZ, last week. Dr. Manrodt led a stirring discussion with Members and Suppliers on harnessing the potential of various sourcing models in modern procurement. Here are some of the key takeaways from his presentation:
Finding the right supplier is imperative. Making sure that the relationship functions for all parties involved is the rest of the battle. Many organizations don't have one touch point with their suppliers. They use the same source across multiple processes, facilities or geographies. Each end use could have a different priority and expectation. Agreeing internally about how to manage the relationship is important, but then you need to create a process to gather and analyze the different internal stakeholders' feedback. KPMG breaks down the internal steps in a recent Spend Matters blog.
