While tactical procurement has long been sufficient for getting the job done, strategic sourcing and procurement, led by a cross-functional team, can take operations to the next level by achieving savings faster and adding sustainable value to an enterprise. Accenture reports that a high-performing sourcing and procurement team can deliver a return on investment more than 10 times the cost of the procurement function. Despite these benefits, many companies have not yet shifted their transactions-based procurement approach to a more strategic one.
To build a best-in-class SSP function, organizations need to rethink the following key areas:
Organizational strategy: Strategic sourcing and procurement strategy should align with organizational strategy. For example, if cost is the organization’s top priority, the strategic sourcing and procurement team will work to balance bulk buying and long-term contracts with obsolescence to achieve the price sweet spot. If the organization prioritizes sustainability, the team will need to find the most cost-effective suppliers that also hold the appropriate environmental, social and governance credentials and experience. Concurrently, strategic sourcing and procurement key performance indicators (KPIs) should align with organizational KPIs.
Timing: The strategic sourcing and procurement team should be included at the start of any project it supports. This enables procurement professionals to begin their analyses right away and, in turn, flag procurement risks as well as early cost-saving opportunities. These team members also need access to appropriate technology and real-time, accurate data to assess spending and control costs. And there needs to be ongoing dialogue between the strategic sourcing and procurement function and its stakeholders. For instance, if the planning or finance function is issuing purchase orders for less than the required quantity in a contract, and therefore losing out on cost savings, the strategic sourcing and procurement team needs to be aware so it can rectify the situation or find an alternative solution. Lastly, the team should survey stakeholders to ensure that suppliers and supplies are meeting each department’s needs.
Team-building: Include knowledgeable professionals from other departments in sourcing and procurement conversations. Likewise, be sure that your strategic sourcing and procurement team members are at least familiar with the various company functions they support. This can be as simple as having them tour the departments or shadow another practitioner.
Risk management: A supply interruption can bring an organization to a halt. The strategic sourcing and procurement team must have a written continuity plan to help the organization pivot to alternative suppliers in case of a supply chain interruption. They should also coordinate with legal professionals to develop contracts that address business continuity, compliance, data security and other risks with suppliers.
Supplier partnerships: Constantly monitor supplier performance. That way, if performance for one KPI dips, the strategic sourcing and procurement team can analyze the situation and help the supplier course correct. This can prevent chronic issues related to late deliveries, product quality, sustainability, transparency or other factors. Also consider the reverse relationship and ask how the organization is performing as a customer. Think beyond the basic relationship to share market insights or include your suppliers in new product development. When you treat your suppliers as partners, they’ll be more invested in your success and more honest with you about challenges.
Although all of these areas are essential to successful strategic sourcing and procurement, they can be implemented a couple at a time to make the transition easier and more effective. Do a current-state analysis to determine which changes will add the most value and start there. Then continue working until you have an efficient, effective system.