What is a Strategic Sourcing Plan, and Why is it Important?
The complex and essential sourcing process has become increasingly imperative to growth and expansion across industries and given rise to the significant need for a strategic sourcing plan. The process of strategic sourcing is different from traditional sourcing as it promotes focus on the total cost of ownership, communicative software, data-driven decision-making and is a crucial step in the digital transformation of supply chain management. It also emphasizes the need for long-term optimization of purchasing processes, supplier relationships, and clear terms of the contract. To maintain efficiency and resilience along the supply chain, strategic sourcing encourages coordination across all departments, developing a dedicated strategic procurement team, and clear insights from functional areas within the organization. A strategic sourcing plan helps companies achieve the necessary changes, implement procurement strategies, and ensure that all sourcing, purchasing, and procurement activities are efficiently organized and managed. The plan commonly involves seven distinct steps to ensure efficient strategic sourcing and encourages an organization-wide improvement of systems, processes, digital platforms, and collaboration.
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How do you Develop a Strategic Sourcing Plan?
Understand Organizational Needs: To efficiently carry out strategic sourcing, the procurement and sourcing teams must have a comprehensive understanding of their market, product, and organization. Most importantly, a strategic sourcing plan requires detailed insight into the organization’s needs, the potential suppliers, and current performance. This step includes benchmarking recent performance, processes, and systems, identifying new and improved needs and targets, and collecting and assessing vast amounts of data. It also requires an understanding of the organization’s current spending patterns, communication systems, collaborative efforts, and departmental involvement. With all this information, the plan can procure and source the requirements from external suppliers or internal departments.
Assess Suppliers’ Market: This step involves identifying the right suppliers and sources, understanding their geographical location, assessing regulations, quality, costs, and other crucial factors. With the rise of global sourcing, most companies identify and partner with suppliers in low-cost countries and require an in-depth understanding of their potential partners’ resources, raw material availability, price-impacting factors, and technological capability. This can differ based on organizational needs, sourcing from a narrower range of countries for raw materials such as, active pharmaceutical ingredients and a wider scope for completed products such as automotive engines. To ensure that the company identifies the right suppliers that can meet organizational needs and demands, provide valuable resources, and help the company grow, this step is necessary. Failure to conduct this assessment may lead to challenges, misunderstandings, delays, or losses at a later point.
Create Supplier Portfolio: Selecting the best fit suppliers is a challenging task and requires significant research, an understanding of the company’s market, assessment of the suppliers’ market, and industry benchmarking. With a clear idea of the organizational needs and in-depth insight into the suppliers’ markets and capabilities, this step of the strategic sourcing plan can be conducted more accurately and lead to better long-term results. Choosing the wrong suppliers can lead to functional challenges, unnecessary expenditure, inability to meet demand, and customer attrition. Companies must select multiple suppliers to ensure the availability of options and assess crucial selection criteria, such as business reputation, past client reviews, prices, business ethics, goals and missions, quality, price, and lead time. With this information ready, the sourcing team can ensure that a contract is signed with the best potential option and no less.
Develop a Sourcing Strategy: This step involves compiling, analyzing, and utilizing the data procured in the first three phases of the strategic sourcing plan and compiling them to develop the ideal sourcing strategy. This can include requesting proposals from certain suppliers, purchasing from a particular supplier, or entering a sustainable, strategic partnership with a chosen supplier. Determining the preferred strategy is imperative to planning and executing the remaining steps and encourages companies to understand the process and their organizational needs clearly. Additionally, this step requires evaluating the competitiveness of the suppliers’ market, the company’s business strategy, and the best way forward for the sourcing department.
Implement Strategies: Once the strategy has been determined, the next step is to identify all required factors, processes, and systems and prepare to implement the said strategy. This step includes contacting, discussing with, interviewing, and assessing suppliers. To ensure a clear understanding and idea of the potential strategic partnership or acquisition, the company will need to provide potential suppliers with crucial information regarding business goals and targets. The supplier will require the necessary equipment, skills, or labor pool to deliver as needed. Establishing partnerships or acquisitions is challenging and requires precise legal, departmental, and organizational transparency and communication. In the case of direct purchases, companies can express their interest to potential suppliers by providing an RFP or RFQ, including necessary details regarding materials needed, specifications regarding product or service, service requirements, delivery expectations, acceptable pricing, evaluation and selection criteria, and required financial terms.
Negotiate and Select Supplier: When attempting to choose the best fit suppliers, companies must approach and interact with multiple suppliers, discuss needs and requirements, prepare offers or RFPs, and await their response. In this step of the strategic sourcing plan, suppliers respond to the propositioned details and provide companies with their potential prices, terms, and expectations. Negotiating and discussing the terms for a strategic partnership, acquisition, or direct purchase is imperative and requires a robust strategy, clear business goals, and a comprehensive understanding of one’s business. Once negotiations have been completed, strategic sourcing teams, procurement officers, stakeholders, and other necessary internal parties must compare and select the best-fit supplier and propose signing a contract or completing a purchase order. Ensuring inter-departmental cooperation, varied inputs, and transparency can confirm a successful and helpful partnership or purchase.
Track Performance and Optimize: Once the contract has been signed and the partnership entered, companies must ensure that they regularly track the company’s performance, quality of product is received, the compliance rate of the supplier, and prices being charged as compared with prices declared in the contract. Any discrepancies must be closely scrutinized and processes must be put in place to bridge the gap between expectations and reality. Establishing clear business goals and benchmarks can help this process be more accurate and sustainable. Additionally, the strategic sourcing plan must be revisited, all data compiled, and successful sourcing must be used as a benchmark for future deals. The research and data acquired must also be repeatedly updated and utilized for future decision-making, overall process optimization, and performance improvement.
An accurate, efficient, and data-driven strategic sourcing plan can serve as the differentiator between a resilient, streamlined, and unparalleled supply chain and enable undeniable growth within organizations. Performing efficient operations requires clarity regarding business goals, transparency regarding operations and processes, communication for partnerships, and collaboration among departments. SpendEdge recently helped a leading food packaging company identify the lack of strategic planning and implementation within its sourcing, procurement, and supply chain management plans and overcome these inefficiencies to restore its position in the market. The company had witnessed a sudden decline in supply chain efficiency and experienced a rising number of unexpected setbacks and risks along with their processes. To tackle the root cause, the company worked with SpendEdge experts to improve their procurement and sourcing efficiency. They developed and implemented a robust strategic sourcing plan, utilized the relevant data to improve systems, identified best-fit suppliers, increased productivity, and witnessed a steady increase in sales. Additionally, the improved quality of product, clarity among employees, collaboration among departments, and support of stakeholders helped the business boom.