Why You Must Align Sourcing with Business Goals

The unforeseen events of recent times have triggered a rethinking of business operations, particularly those related to supply chains.

Among other things, they have necessitated the need to map the entire supply chain, work closely with key suppliers and identify lower-tier suppliers.

They have also made it vital to streamline sourcing and procurement operations.

No longer can businesses rely on one or two suppliers located in far-off regions, especially for critical supplies. Additionally, they cannot evaluate and shortlist a supplier based on cost advantage alone.

Where to source raw materials from and how to select suppliers have become crucial decisions for businesses of all sizes and across industries.

No less important is the need to have a backup plan to deal with an unexpected disruption.

Geopolitical tensions and increasing disruptions have exposed the vulnerability of global supply chains. Not surprisingly, many businesses are now looking to nearshore their supply chains and source raw materials and supplies from nearby locations.

Clearly, businesses need to carefully examine the risks and think beyond cost cutting when deciding to source raw materials from suppliers located in far-off regions.

Changing consumer expectations have also accelerated changes in sourcing strategies. Consumers have become increasingly conscious in their buying decisions and are mindful of the environmental and ethical implications of their purchases.

They demand sustainable products, faster deliveries as well as transparency in supply chains. And they do not hesitate to reject a brand or product that does little to meet environmental and ethical standards.

“Globalization, technological advancements, shifting consumer expectations and unpredictable disruptions have created a complex and dynamic environment for businesses. To remain competitive, organizations must adapt their supply chains to meet the challenges and seize the opportunities presented by this evolving landscape,” says Krish Vengat, vice president of consulting at GEP in a recent webinar Future-Proofing Your Supply Chain: Why Strategic Sourcing and Tech are Key to Sustainable Growth.

What is Strategic Sourcing?

Unlike the traditional, cost-centered and short-term approach to purchasing, strategic sourcing lays emphasis on long-term value creation by aligning the purchasing strategy with business goals.

Instead of focusing on the initial purchase price, strategic sourcing empowers category managers to determine the total cost of ownership. The objective is to implement a long-term plan to optimize the sourcing process with ongoing market research and supplier relationship management.

Strategic sourcing involves an in-depth analysis of business needs and historical spending. It also involves market analysis and data collection to arrive at a strategic plan for sourcing processes such as supplier selection.

Why Should Businesses Undertake Strategic Sourcing?

Not so long ago, sourcing was considered a routine, backend process. Except for monitoring costs, there wasn’t a definite KPI and strategy for sourcing teams.

All this has changed today amid growing uncertainty in a business landscape prone to disruption.

In addition to costs, sourcing now involves a careful assessment of the risks involved in procuring products from a supplier, country or a region.

Strategic sourcing considers multiple business objectives including cost management, risk mitigation, quality assurance, innovation, enhanced customer experience and sustainability, says Vengat.

The incorporation of key business objectives also means that sourcing teams can no longer pick suppliers randomly with their gut feeling. Instead, they must follow a structured data-driven approach for supplier selection.

And the process does not end with supplier selection. Strategic sourcing also involves monitoring supplier performance and improving the process on an ongoing basis.

How Strategic Sourcing Makes Use of Technology

Strategic sourcing involves the use of advanced technology to gain a comprehensive view of market insights and strategic guidance to category managers throughout the procurement life cycle, explains Vengat.

This intelligence empowers managers to take full charge of each category and tap into the preloaded critical market insights across hundreds of categories, he adds.

The sourcing tool can leverage predictive and prescriptive analytics to classify and scrutinize data and promptly alert supply chain teams. It aids in making well-informed decisions by providing a granular perspective across the enterprise.

With access to a vast network of active suppliers, the tool can make supplier recommendations based on category, region as well as specific requirements.

It can also employ artificial intelligence to uncover new innovative suppliers, thereby unlocking the potential for supplier-driven innovation.

Conclusion

The dynamics of sourcing have changed today. The use of technology has expanded the scope of the function to include responsibilities that were earlier given to core business teams.

Strategic sourcing and technology adoption are vital to building resiliency and future-proofing supply chains. Businesses that do not leverage technology and continue to rely on traditional methods of sourcing are very likely to lose out amid an increasingly uncertain yet competitive environment.

Watch the full webcast here.

Here’s how GEP can help optimize your strategic sourcing.