How To Be Strategic When Sourcing Products or Services For Your Business
Businesses around the world continue to incorporate the power of globalization. This helps to improve their performance. As such, the process of sourcing products and services from suppliers cannot be forgotten.
Every business requires raw materials and direct services to produce goods for their customers and carry out routine operations. In a competing global market, this among other factors is necessary if a business must thrive.
Sourcing for goods and services should be a strategic function that aligns with the mission and objectives of the organization. Organizations need to understand how to implement effective strategic sourcing to improve their business. This can enable them to have an edge over their competitors.
1. Analyze Business Needs
To build a strategy for sourcing products and services, you need to be able to identify what works for your business and what doesn’t. Categorize the procurement method currently in use into efficiency, cost-effectiveness, and pain points. Further classification of the areas of spend in your organization and its analysis using the categorization above is also crucial. You can simplify this process with the right software. And, using the source to contract software can grant you access to past and present performance, supplier evaluation, and other analytical tools. These are all useful in mining data for your business. Meaning, you can easily get rid of many issues you may have had.
2. Evaluate Market Supply
At this point, you want your organization to have a evaluation of both present and future contractors for a better understanding of the supplier profiles. Including the identification of the right market that can deliver premium raw materials, components, and finished products or services consistently.
Then analyze the market for compatibility and organize according to cost, spend category, proximity to the organization, logistics, political, economic, social, and environmental concerns. You should also consider the revenue of suppliers to know their performance within the industry. Additionally include risks and opportunities around the supplier market.
3. Request Supplier Information
After an in-depth analysis of the market supply, you can select, evaluate and categorize potential suppliers. These factors below will help you rank the suppliers:
- Affluence and Influence
- Financial Stability
- History of trust and compliance with industry and state regulations
- Number of references
Requesting for information, proposals, and quotations (RFIs/RFPs/RFQs) from suppliers is part of the steps to take in this stage. Communicate the needs of your organization with the suppliers as well as the end result. Also, don’t forget performance expectations so they have a clear understanding of your needs.
Their submissions would help your strategic team to rid less performing suppliers from the current chain of supply. At the same time, adding capable vendors that’ll help your business grow and ensure rigidity when there might be possible disruptions.
4. Develop a Sourcing Strategy
This covers how you intend to purchase after knowing who you are buying from. Use your firm’s business and risk management strategy and goals for supplier relationship development as a benchmark. Then you can review the current modus operandi or create new ones.
New protocols you may establish include:
- Requests for proposals or requests for quotes directly from vendors.
- Contracting preferred suppliers for a period not based on available projects.
- Establishing long-term strategic partnership using advanced contract management.
- Using Key Performance Indicators for the internal workflow. This creates standards for efficiency, growth, profit margin, while also making efforts to reduce costs.
After the development of a sourcing strategy, you need your team to be in line with the new approach. New protocols would call for timely training for the team to adopt and ensure it succeeds.
If you intend to implement multiple sourcing strategies, executing them in these stages would be a good approach:
- Awareness Phase: Inform your team about the new strategies. Organize preparatory training for them, management, and suppliers.
- Implementation Phase: Gradually implement and monitor new procedures.
- Review Phase: Evaluate whether new strategies are being followed and intended improvements achieved.
- Revision Phase: Supplementary training is needed as a reminder of the implementations. KPIs are put in place to measure performance regularly.
Strategic sourcing for products also involves you communicating more with your vendor after your team analyzes the supply market and selects a supplier using the classification you set. Furthermore, ensure the procurement process between the supplier and your organization is clear and open to everyone. This is critical in setting the pace for your new supply chain.
Organizations are embracing strategic sourcing to create an all-inclusive approach to managing their sourcing requirements and to establish a proactive approach to possible disruptions in their supply chain.