Best Practice: 5 ways to implement strategic sourcing and save cost

The biggest objectives of sourcing operations are to save cost and make sure that right material is available at right time. Since both pull each other in terms of getting one of them fulfilled makes the other one unfulfilled, it has become a dire need for the industry today to move from the tactical ways to improve the efficiencies in sourcing operations to the strategic ways so that more organized and intelligent purchasing decisions are taken as a process.

The today’s strategic sourcing initiative can be facilitated using following 5 ways:

• Automated sourcing or eSourcing: This is the most important and the best way to achieve higher efficiency from your sourcing process. Automation of activities like RFPs, supplier negotiations on lead time-price etc. and other online requests like advance shipment notice, changes in delivery schedule will make sure that the delay in communication is least and the manual errors are avoided. This also can be supplemented with supplier base, item category and process knowledge to support online negotiations and maintain advanced sourcing results
• Contract Lifecycle Management solution: Lot of times, we fail tot rack the key milestones in our contract and either lose on discount or lose the already calculated potential savings. Activities like creation of contract, approval management, maintaining the service level agreements and key data analysis helps the sourcing team to execute and monitor the supplier contracts much more efficiently and hence can bring good savings
• Spend Analysis: Do you know, even the best managed organizations have only 70% spend under management. This is an area which offers a lot of space to improve and availability of this spend data helps not only drive deflation with suppliers, it also provides you opportunity to aid your other sourcing efforts. Spend Management tools will add to your ability to extract data from multiple systems, its transformation and enrichment and reporting in user friendly formats. You will be able to see data on the basis of vendors, item price, item category or UNSPC codes which will immensely help you in negotiating with your vendors and improve cost savings
• Collaborative Sourcing: It is time to include your suppliers as well as customers in your sourcing cycle not from costing perspective but from item lifecycle value creation perspective. You need to start exploiting your suppliers innovative skills to your advantage by collaborating more with them and collectively reach your targets of cost savings
• Reverse Auctions: We all know that reverse auctions are auctions where the bidder is the seller and not the buyer. This concept forces competing vendors to reduce their bids in order to win a particular contract and in process you get the cost savings. Implement a reverse auction system in your organization and start using this for at least the high volume commoditized products and items. In addition of the savings, this is more transparent and competitive way of sourcing which takes the whole process to a strategic sourcing level. One caveat though, most of the suppliers do not like this process as this squeezes their margins and does not help in long term relationships with suppliers. Implement it but balance it in such a way that your partnership with current suppliers is not impacted.

I am sure above practices and tools have the potential to help you achieve your strategic sourcing objectives and can bring cost savings to your operations.