Tag: strategic sourcing process

strategic sourcing

Developing Direct Buy Model and Achieving Savings of $21 Million for a Heavy Equipment Company by Improving the Strategic Sourcing Process

Heavy Equipment Industry Overview

As of 2019, there are several challenges facing the heavy equipment industry. Sustainable building practices and stringent standards have become top concerns for companies. They need to search for ways to accommodate customer demands for unique products while remaining competitive in the current economic environment. Also, they need to improve the strategic sourcing process to minimize costs, consolidate supply base, and identify the best cost countries by category while enhancing operational efficiency.

Business Challenges Faced

Our client, a heavy equipment company was the product of 10+ mergers and acquisitions over the past 15 years. As a result, the client had a highly fragmented supply base across North America and Europe with no formal supply agreements or sourcing strategy. The lack of defined process to go to the market and inconsistent and volatile pricing by location was adding on to the woes of the client. Also, stringent government safety regulations were challenging the client to transition their business to alternative means of supply.

Want to know how implementing strategic sourcing best practices can help you address supply challenges? Request a free proposal to know how you can improve your strategic sourcing process and we will get back to you within two working days.

Our Research Approach

To help the client identify the highest level of savings and potential categories, the experts at SpendEdge developed a potent strategic sourcing strategy. The strategy helped the client to target seven key categories. The experts then identified the best cost countries by category and determined the technical and governmental requirements for each manufacturing and service location.

SpendEdge’s proprietary direct buy model coupled with the strategy to improve the strategic sourcing process helped the client to establish OEM, improve mill level relationships, and transition supply away from incompetent distributors. Also, the insights provided empowered the client to identify opportunities to align with “Global” suppliers and obtain significant operational benefits and lower cost.

Wondering how enhanced strategic sourcing process will help you develop an effective sourcing model and identify best cost countries?

Reach out to our experts for an immediate response.

Engagement Outcome

The improved strategic sourcing process helped the client to achieve significant operational and service improvements and realize over $21 million in cost savings. The increased engineering and technical support, and a formal cost reduction model with suppliers helped the client to establish global supply agreements for seven categories and minimize price volatility across all regions.

Improving strategic sourcing process is crucial for companies to minimize price volatility across different regions. Subscribe now to access accurate category insights and improve strategic sourcing supply chain management.

Steps to Improve the Strategic Sourcing Process  

  • Collate the demand and usage information to understand the category.
  • Identify existing and potential global and local suppliers and the risks associated with them.
  • Develop a robust strategy to negotiate with suppliers who can meet the relevant criteria.
  • Benchmark the current status, monitor the results and ensure that the full value is being achieved.

To improve your strategic sourcing process and implement strategic sourcing process best practices, request for more information from our analysts.

strategic sourcing

7 Easy Steps to Improve Your Strategic Sourcing Process

Strategic sourcing is a process that has a real-world impact on all facets of a business. It involves internal collaboration with stakeholders and suppliers, as well as critical analysis of spend, and supplier risk management. It enables you to identify supply risks and develop a plan to mitigate them. With an improved strategic sourcing process, you can align purchasing power with the overall value proposition and build a diverse supply base. Also, you can determine ways to reduce supply chain costs and manage supply risks.  Therefore, it becomes crucial for you to improve the strategic sourcing process. And to help you establish a good strategic sourcing methodology and reap benefits of the strategic sourcing process, the experts at SpendEdge have highlighted the key steps involved in improving the strategic sourcing process.

7 Steps of Strategic Sourcing Process

Step 1: Identify spend areas

Identifying spend areas is a key step in improving the strategic sourcing process. This is done at CEO, CFO, or CPO level and involves selecting areas of spend that could produce cost reductions or process improvements.

Critical to this step is prioritizing the various spend areas based on the objectives of the company. Collect data about your company, analyze the data, and build the framework you’ll need to divide the entire supply chain into various categories. This will help you in categorizing spend and understanding where the spend is taking place.

Want to know how an improved strategic sourcing process can help you analyze spend areas and identify cost reduction opportunities? Request a free proposal to access our solution portfolio for free.

Step 2: Perform Supply Market Analysis

Begin your supplier market research to find relevant suppliers and identify the ones that can be beneficial for your organization. The process involves supplier market analysis, demand analysis, supplier selections, and category risk analysis. 

Collect data for the supplier base that can supply different categories. Go beyond your existing customers and consolidate supplier data. Analyze the spend in different categories and compare your spend to the supplier revenue. This will help you understand how valuable you can be to the supplier.

Next, conduct supplier interviews to select suppliers. Send RFI to potential suppliers and compare it with costs you are paying to your current suppliers. This will help you understand whether its wise enough to continue with current suppliers or not. Finish the step by performing a category risk assessment to determine if new suppliers are worth the risk or not.

Step 3: Analyze your current sourcing process  

Engage with stakeholders to gain detailed insights regarding products used by suppliers. Know why they are using certain products compared to cheaper alternatives and find ways to cut costs without comprising the quality. Identify similar or alternative components to benchmark against your current ones and make the strategic sourcing process efficient. Evaluate potential suppliers against the current one and calculate the hidden costs associated with new suppliers. Even if you don’t intend to source from overseas, benchmark suppliers and products on the global level so you can have a global point of view.

Wondering how you can perform supply market analysis and find ways to improve your strategic sourcing process?

Get in touch with our experts to gain detailed insights into the strategic sourcing best practices.

Step 4: Develop a strategic sourcing strategy

Once, you have a clear idea of spend areas and supply market, develop a robust strategy to determine ways to minimize costs and risks. But before that, understand current suppliers’ capabilities and the future requirements for the commodity or service from the business units. This will help you to identify and establish timelines and milestones as a road map to accomplishing the objectives. Additionally, such strategies will negotiate the best possible deal with suppliers you choose for the organization.

Step 5: Supplier selection process

After self-evaluating the suppliers, send an RFI or an RFP to gain relevant insights.  Define your requirements, and detailed questions to obtain a comprehensive overview of the product, processes continuous improvement policies, and costs. Once you get the questionnaire back from potential suppliers, develop the supplier portfolio and a score. This will help you benchmark scores against your requirements, determine the minimum score required by the supplier to qualify, and improve the strategic sourcing process.

Developing a supplier portfolio is an important part of the strategic sourcing process. Request a free demo to start your 7-day free trial now!

Step 6: Initiate RFQ Process

Since, you have shortlisted qualified companies who possess the potential to meet your needs, challenge your existing supplier by sending a request for quotation (RFQ). This will add an element of competition and help you get the best value in terms of cost savings. Prepare documents for each vendor, include a description of your company, the project, and background information and attach terms and conditions to be followed while making a bid. This will help you spend less time in negotiation, keep the process transparent and sign contracts at the best prices.

Step 7: Maintain supplier relationships

Probably this is one of the most ignored aspects of the strategic sourcing process. Companies fail to gain substantial value from their vendors after going through such a laborious process of vendor selection.

Establishing an effective supplier relationship management program will enable you to realize savings and improvements that were targeted during the early strategic sourcing process. Implement new ideas or processes, develop continuous improvement cost drivers with the selected supplier(s), and refine the score cards to keep the momentum going.  

Still have doubts regarding the ways to improve the strategic sourcing process. Request more information here!


You May Also Like: 

  1. How Can a Cost-effective Strategic Sourcing Process Benefit Companies?
  2. Challenges for Strategic Sourcing – What’s Bothering Supply Chain Executives?
  3. A Leading Mining Company Transformed Procurement Functions and Identified Savings of 35% Through Strategic Sourcing – A SpendEdge Success Story

 

cpg industry

Strategic Sourcing: Enabling E-commerce Businesses to Strengthen their Position in Australia

Download this free article to know improving strategic sourcing process can help companies to strengthen their position in the Australian market amid the rising market opportunities.

Globalization of supply chains has made ecommerce giants explore market opportunities in different countries. But at the same time, it has also increased the number of third-party logistics (3PL) providers and co-packing suppliers which is negatively impacting the cost efficiency of companies. They need a strategic sourcing model that can successfully reduce operational costs and improve spend visibility.

The Business Problem

Know how, a $10 billion-plus global leader in e-commerce business engaged with SpendEdge to leverage strategic sourcing to strengthen its position in the Australian region. The client also focussed on building an agile supply chain and improving third-party logistics (3PL) operations to reduce spend on transportation and warehouse management. The key objectives they were looking to achieve through this engagement were:

  • Manage the rising number of suppliers.
  • Improve the supply chain process
  • Reduce operational costs.
  • Track their purchasing budget, stocks, and supply market.

(more…)

strategic sourcing

A Leading Steel Company Leverages Strategic Sourcing Solutions to Achieve Annual Savings Of $17 Million

The Business Challenge

A leading steel company, that exhibited a great deal of growth in recent years by acquiring other steel organizations, was facing problems that were common to enterprises that employ mergers and acquisitions as a growth strategy. The acquired companies lacked common item codes and offered tremendous scope for streamlining processes. This compelled the company to collaborate with SpendEdge and achieve better cost savings in indirect and MRO spend. The target set by the company to reduce sourcing costs was 15% since for organizations like them, this reduction constitutes a considerable sum.

Apart from this, the company was looking forward to improving their overall efficiency, maximizing their financial performance, and driving product innovation by implementing a competitive global strategic sourcing process. The key objectives they were looking to achieve through strategic sourcing were:

  • Control spend data by having an organized system in place for their parts information to avoid any hidden charges.
  • Determine the cost structure of suppliers, have a strong sense of the market situation and implement strategic purchasing.
  • Optimize cost savings by reducing reliance on tier 1 suppliers(direct suppliers).

Controlling spend data can maximize the financial performance of companies. Request a free proposal below and access our complete portfolio of strategic sourcing solutions.

Solutions Offered

The experts at SpendEdge obtained detailed market intelligence information on the supply market and supplier landscapes from different plants and suppliers. They tracked activities and innovations to help the client understand best sourcing and category management practices and develop robust strategic sourcing process. The information gained, therefore, enabled them to deploy the right sourcing strategy and negotiate more favorable terms with suppliers, taking advantage of the client’s significant economies of scale.

Deployment of strategic sourcing strategies led to the creation of cost optimization models for key categories that helped the client to identify sellers that quote width adders in intervals. Parts with widths close to a larger interval category can be sourced less expensively if the coil width is increased to the breakpoint. This helped the client to increase savings potential by smartly using the excess material for offal utilization.

SpendEdge’s strategic sourcing strategy further allowed the client to manage risks such as resale programs and hedging. This ensured secure supply at better managed costs for the client. Such resale programs offered better savings by attracting suppliers that offer favorable pricing. The strategic sourcing strategy filled up the capacity in the value chain and enabled the client to negotiate lower pricing for value add processing through the intermediate steel processors.

The strategic sourcing strategies evaluated options of buying from different suppliers or from different plants from the same supplier for the client. This helped the client to re-allocate the processing to a low-cost producer in the value chain.

Wondering how following a strategic sourcing approach can benefit organizations?

Request a free demo to know more.

Key Findings

Streamlined the Procurement Process

In a span of one year, the strategic sourcing process developed by experts at SpendEdge streamlined the procurement efforts of the client. This enabled them to save between 15 and 20% depending upon the category and accounted for an annual savings of $17 million a year. The number of suppliers reduced significantly, which streamlined numerous operations while reducing costs for the client. Also, it helped in developing mutually beneficial strategic alliances with individual suppliers.

Enabled the Usage of Mini-Mills

The strategic sourcing solutions rendered further helped the client to shift volume to suppliers in other countries and import that steel at low enough prices to stay competitive despite higher transportation costs. They gained detailed insights to increase the usage of mini-mills to create more leverage in the steel purchasing process. Mini-mills offered competitive pricing as transportation costs are low and profit margins considerably high.

What is Strategic Sourcing and Why is it Important?

Strategic sourcing is an organized and collaborative approach adopted by organizations that formalizes the way information is gathered and used for strategic purchasing. It leverages targeted spend across locations with selected suppliers that are best suited to creating knowledge and value in the customer-supplier interface. 

Strategic sourcing enables organizations to take advantage of innumerable benefits while focusing on their core competencies. It mitigates risk, enhances the quality of goods and services, ensures timely delivery of goods and services, reduces costs, and improves supplier relationship. The key reasons for adopting strategic sourcing best practices are:

  • Quality of Supplies: Strategic sourcing strengthens relationships with suppliers and ensures timely supplies of materials. It results in quality improvements and streamlines the procurement process
  • Cost Reduction: Strategic sourcing solutions help companies to negotiate lower unit prices for high-volume purchases, thus, maintaining a competitive pricing of their products. Also, strategic sourcing strategies allow management to focus on core activities.
  • Risk Management: With a strategic sourcing process, companies can proactively identify and resolve problems pertaining to suppliers. This can reduce supply chain disruptions considerably.

Implementing strategic sourcing best practices helps companies to mitigate risks and enhance the quality of goods and services.  Get in touch below and know how our experts can help you in implementing the same.

photography work space on top view

How Can a Cost-effective Strategic Sourcing Process Benefit Companies?

Strategic sourcing process

Even now, many companies consider purchasing to be simple and merely a means to an end. The key aim of any procurement team is to meet the financial requirements while minimizing costs for their organization. Most teams, therefore, pitch competing suppliers against one another to cut purchasing costs. This hardly gives companies any scope to formulate an effective procurement strategy and build goodwill among suppliers. As a result, companies find it challenging to implement a strategic sourcing process and improve their overall purchasing efficiency. Following this traditional purchasing approach results in a lack of visibility, missed opportunities, and cost synergies for businesses. The absence of a strategic sourcing process also hampers the quality of products and negatively impacts the decision-making process.

At SpendEdge, we understand the impact that following a cost-effective strategic sourcing process can have on your business. And to help sustain profitability, our team of experts has highlighted some of the key benefits of following a strategic sourcing process. Though knowing more about the key benefits of a strategic sourcing process can help businesses achieve significant cost-savings, let’s first understand why companies need it and the impact it can have on your business. (more…)

Request free proposal