Spending less to make more: Strategic Sourcing and Procurement

In the Supply Chain and Management of every company, the overall goal of strategic sourcing is to achieve large and sustainable cost reductions, long-term supply stability and minimization of supply risk. The strategies to achieve such goals can be as wide as rationalizing supplier base, leveraging spending across departments, business units and geographical regions, reconfiguring supply specifications, and / or developing strategic partnerships / alliances with selected suppliers (Deloitte, 2014).

From an article ‘Creating Value through Strategic Sourcing’ by (GE Capital, n.d), it makes it clear why strategic sourcing should be critically undertaken by any business enterprise given the global trends in the business environment.  GE Capital provides commercial lending and leasing, as well as a range of financial services such as for health care, media, communications, entertainment, consumers, real estate, and aviation.  

In this article, strategic sourcing has been defined as an institutional sourcing and supplier management process that continuously improves and re-evaluates the supply chain activities of a company. As a result, it is therefore critical to ensure that any organization clearly identifies its suppliers and maintains a good supply chain network. This is because the global macroeconomic environment has changed while the supply bases are becoming more risky due to volatile input prices and increasing frequency of disruptions. A number of bankruptcies in supply chain has increased making it even more important to ensure strategic sourcing is ensured.

The principle goals of strategic sources are:

• ·  Establish a consistent framework/approach to improving the quality, service and technology of goods and services consumed by an organization
•    Develop tools and capabilities that enhance visibility into the goods and services consumed
•       Provide a single view across the enterprise of goods and services consumed
•       Develop standard agreements/template
•    Create and deploy a framework/policy that addresses ongoing maintenance and monitoring of goods and services procured by the organization (e.g., procurement agreements compliance).

Strategic sourcing should be an iterative process that cuts costs and reduces risk, while building better relationships with fewer, more critical suppliers. The following cutting from (GE Capital, n.d) gives further emphasis on strategic sourcing:

Strategic Sourcing Interactive Process

Source: (GE Capital, n.d)

Ensuring these steps are followed in the supply chain and management of any business in an interactive manner will reduce the chances of risk reduction and cut down on procurement costs.

In summary for good supply chain coordination and sourcing it is imperative strategic sourcing to:

• Analyze and understand your current sourcing processes and procurement spend
• Establish a consistent framework/approach to improving the quality, service and technology of goods and services consumed by your organization
• Plan a sourcing strategy that turns the supply base into a source of competitive advantage
• Build a sourcing program by hiring the right people, involving the procurement function early on, and managing suppliers effectively
• Create and deploy a framework/policy that addresses ongoing maintenance and monitoring of goods and services procured by the organization

Work cited:

Deloitte, 2014. Sourcing & procurement. Available at: http://www.deloitte.com/view/en_GR/gr/services/consulting/supply-chain-management/2-sourcing-procurement/. Accessed 26 February 2014.

GE Capital, n.d. Creating Value through Strategic Sourcing.Available at: http://www.gecapital.com.au/common/documents/access-ge//GE_Capital_HowTo_Creating_Value_Through_Strategic_Sourcing.pdf. Accessed 26 February 2014.