Many firms find maintaining the product and service quality while reducing costs a never-ending struggle. Fortunately, they can accomplish this through strategic sourcing, which is the process of continuously examining a company’s purchasing practices.
Strategic sourcing is used in the procurement process to achieve the best pricing for a product or service. The key objectives are to minimize costs, improve supplier performance, and reduce the risk of failure. That said, if you’re trying to achieve such goals, the following are key steps to a successful strategic procurement process:
1. Identify the Needs of Your Organization
Procurement plan development begins with assessing existing performance and determining what’s needed to meet those demands and goals. It will necessitate the collection of a wide range of data.
There are many ways you can assess an organization’s current operations and predict its expected future growth. You can communicate with your departments, analyze workflows, do A/B testing, and gather customer feedback. After determining your needs you can save money and get an advantage over the competition by looking for suppliers or options for outsourcing that can meet your demands and with reasonable offers, such as what Reid Supply offers.
2. Assess the Supplier’s Market
Identifying potential sources of raw materials, components, finished goods, or services is one of the primary duties of the strategic procurement team at the company. If there are precise needs, the number of suitable vendors may be limited.
3. Gather Information About the Provider
It is essential to select your business suppliers appropriately. Your corporation can suffer significant losses if your supplier does not match your selection criteria. You may also consider checking the supplier’s portfolio or profile on how they have been transacting business.
Customers of the provider should be able to tell you about their experiences if it is possible to do so. An agent’s market and stakeholder skills and expertise might also help you make an informed choice in selecting a provider.
It’s possible to create a competitive environment by selecting more than one provider to avoid supply disruptions. On the other hand, large international firms can benefit from this strategy because it provides centralized control but regional distribution. However, beware of scammers to avoid falling victim to procurement fraud.
4. Formulate a Purchasing Strategy
You can use the data gained after the steps above to establish an organization’s sourcing or outsourcing strategy. Direct purchase, strategic partnership, and acquisition are all forms of sourcing.
The purchasing company’s risk tolerance, general operational strategy, and innovation for outsourcing will all play a role in the design it chooses.
5. Actualize Your Sourcing Plan.
It’s a massive undertaking to acquire goods/services or collaborate with other businesses. Among providers in specific scenarios, the following traits are more likely to be present:
- An example of the buyer’s engagement in core activities is limited raw materials or access to highly sensitive proprietary knowledge.
- Vendors have a unique collection of tools and technology and highly-trained people, which is a component of an overall business strategy.
- A request for proposals or quotes, an expression of interest, or a competitive bidding process can all be used by companies to find new suppliers for direct purchases.
- Material, product, or service specs should be part of the request for the proposal and time frame of purchase, order execution, service requirements, evaluation procedure, pricing catalog, and financial terms.
6. Supplier Negotiation and Bid Selection
The purchasing team’s strategic procurement criteria must be used to evaluate vendors. Before making a final selection, the organization should provide all bidders with more information so that they may come up with the most realistic bid possible.
The strategic supply chain team can examine accepted proposals and quotations, then use a selection matrix to outline bidders who can give the most comprehensive propositions or pick the most appropriate bidder and second successful bidders, respectively, at the end of the process. After the review is done, the strategic supply chain team can initiate contractual talks with the successful winner.
7. Implement a Turnaround Strategy
You have to enlist the best service providers when implementing modifications. Developing a communication strategy and an evaluation system based on quantitative key performance indicators is vital. It is especially critical if you’re working with a new vendor. It would be best to have a plan in place for switching vendors.
Organizations need strategic sourcing to remain competitive, relevant in the market and to bring maximum value to the organization. Following the above-stated basic steps may help establish and implement a sound and viable procurement plan.