Move from Tactical to Strategic Sourcing in 3 Steps

Tactical Sourcing is a reactive form of sourcing products, materials and services, where the decision of shortlisting suppliers is based mostly on lowest quotations. This kind of method takes care of immediate needs without any thought placed on building supplier relations etc. Suppliers with L1(Lowest Bid) quotes usually walk away with the order.

Strategic Sourcing, on the other hand is where the supplier-buyer relationship is built and honed. This closed loop interaction is perfected over time so that both organizations work in a tandem to fulfill current and future needs. In this scenario, the focus is on total cost of ownership (TCO) for every procurement, in addition to quality and punctuality of the deliverables.

It is more than evident that forward thinking organizations would like to move from a tactical sourcing set up to that of strategic sourcing.

Legendary cost-optimization success stories like that of the convenience store chain 7-eleven and Toyota’s Just-in-Time inventory management have been possible because they were able to manage sourcing strategically after very many iterations of hard work, and heavy technological investments.

A big difference between tactical sourcing and strategic sourcing is that while it is possible to manage tactical sourcing manually, it is virtually impossible to implement strategic sourcing without an automated system. Many large companies have successfully managed to make this transition using complicated in-house tools and iterative changes over a period of many years. However, medium size businesses and even large organizations have not had the resources nor the time or even access to technology to be able to make this shift.

But now…times are a changin’!

Mature and creative SaaS product companies like Expenzing offer a completely integrated suite of Procure to Pay and e-Sourcing solutions. This helps medium and large businesses take advantage of the complete offering at an optimized cost.

So, now if a forward thinking organization is looking to implement some strategic sourcing plans, they can do so in these 3 simple steps.

1. Get an eSourcing system.
   

   eSourcing goes way beyond digital Reverse Auctions. The complicated RFI, RFQ and RFP processes of shortlisting vendors must also executed within the eSourcing system. A good eSourcing system should have the following characteristics

   1. Easy and intuitive to useProduct should account for all the variety of users that can be the vendors and buyer teams and create a system that is well understood and requires minimum training.
   2. Provides a holistic and structured evaluation of vendorsTo implement strategic sourcing, one has to go beyond the lowest quote as the qualifying criteria. Therefore, the product should provide a platform to easily compare the quality or different service points.
   3. Build the pool of vendorsSystem should allow the buyer/ organization to maintain a pool of vendors, based on the items and services they offer. It’s an added benefit if the vendors are ranked/graded based on past experiences to help make selection easier.
2. Get your suppliers onboard, ensure product adoption
   

   Some suppliers get miffed and are paranoid about the ‘fairness’ and transparency that a technological barrier provides. Get your biggest, loudest suppliers onboard with the program. Highlight benefits like lower sales cycle time, higher chances of repeat business, and enhanced prospects to bring them onboard. Once the larger and critical suppliers are convinced, it is easier to mandate the product adoption and related protocol.

3. Supplement your eSourcing with a solid eProcurement software and Supplier Portal
   

   The e-Procurement system must connect to and provide a sound basis to assess the quality of vendor-supplier transactions. Having an eProcurement system will help you identify your purchase patterns and details of business that you are giving to each vendor. Having a supplier portal takes the supplier management and supplier relationship to the next level. These two systems essentially close the loop of the buyer supplier interaction that plays such an important role in strategic sourcing. However, here are some things to consider before you go ahead with your decision to buy an eProcurement system and a Supplier Portal.

Having complete data, flexibility, and strong communication channels with the suppliers will help any organization to have keen insights into their purchasing behavior. This will help you to formulate sourcing strategies more appropriate to your organizational goals. A mature and flexible eSourcing application will then help execute it to help achieve desired results.