Strategic Sourcing

Why is Strategic Sourcing Important?

Strategic sourcing is essential for organizations looking to optimize their procurement performance. It involves a comprehensive approach to managing purchasing activities, focusing on long-term partnerships with suppliers, total cost of ownership (TCO), and risk management. By leveraging Strategic sourcing, companies can enhance their competitive advantage in terms of reduced cost, improved innovation & supplier relationships, and ensure the sustainability of their supply chain.

How to Perform a Strategic Sourcing Initiative?

A professionally conducted sourcing process identifies best value on the market and builds a baseline for sourcing decisions. PIR’s sourcing process has been proven in a large number of assignments in various industries and scopes, securing long-term benefits for the customer. The process is easy to understand, effective and emphasizes cross-functional collaboration. PIR’s base process has five steps (however, these may vary depending on scope).

1. Mobilize: Define the sourcing objectives, scope, and business case. Identify stakeholders and gather data to understand future demand, requirements, and perform a supply market analysis. Establish a baseline and develop the sourcing strategy, addressing market risks, opportunities, strategic sourcing options and internal transformation needs. Plan a tender approach that considers your scope, projected supply market and drives towards your intended business outcome. Mobilize team and governance and establish your overall plan for tendering, negotiating, contracting and transitioning to the new solution.
2. Tender: Secure and facilitate the right level of involvement of business stakeholders and decisionmakers. Compile the tender package, invite and onboard your prospective suppliers. Ensure clear communication, transparency and documentation throughout the process.
3. Evaluate: Verify that supplier responses are complete and relevant. Conduct an initial comparison between proposals and engage with suppliers for presentations and clarifications.
4. Negotiate: Plan and execute your negotiation tactics to secure the best possible deal. Provide continuous feedback to suppliers and leverage strategies dependent on project characteristics, e.g., use competition between tenderers or seek win-win conditions.
5. Contract: Finalize the agreement with the selected supplier, ensuring all terms and conditions are clearly defined and signed by all parties. Notify all suppliers of the procurement closure and provide final feedback.

What Are the Success Factors of Strategic Sourcing?

The success of a strategic sourcing process is dependent on several factors. Below are six aspects we consider key, based on our experience from various strategic sourcing projects.

Align objectives and scope with the overall business strategy
Defining clear objectives and scope is crucial for the success of strategic sourcing. Aligning project goals with the company’s overall strategic vision ensures that sourcing activities contribute directly to broader organizational goals (e.g. cost reduction, innovation, and/or market expansion).

Stakeholder engagement is critical
Engaging stakeholders early in the process is essential for fostering collaboration and securing buy-in. Identifying and involving the actual decision-makers from the outset ensures their insights and requirements are incorporated into the sourcing strategy, as well as avoiding conflicts or delays in critical decisions.

Competition is key to maximize value creation
Creating a competitive environment is often vital for maximizing the value creation in a strategic sourcing process, especially if cost is a priority. Involving multiple tenderers encourages suppliers to offer their best proposals, driving innovation and cost efficiency. When it is not possible to involve many tenderers, it is still important to create a sense of competition among involved parties. E.g. competition does not have to be between vendors – it could be between competing investment or growth opportunities. Regardless of tactic selected, alignment and coordination with internal stakeholders is pivotal to manage this arena.

Conduct a transparent and professional process
Maintaining a fair and transparent process is essential for building trust and credibility with all parties involved. Transparency ensures that all suppliers are treated equally and that the sourcing process is conducted in an open and honest manner. In the future you might work with some of the not-awarded tenderers.

Spend time and effort on the early stages
It’s easy to focus on the negotiation steps of the process. However, if the earlier stages are not properly addressed, the outcomes of the later steps will suffer, and the process will become more time-consuming. Therefore, it is crucial to fully understand today’s situation, identify our actual needs, clarify what we want, and determine what is truly important.

Follow through to ensure business effect bottom line
Ensure there is a plan for transition to the new solution from the beginning, and that the desired performance and results are being monitored. If the contract is not implemented or followed, your tender may have been an expensive waste of time and resource. A large part of external spend tend to be managed under service contracts, subject to change and continuous negotiation post initial contract signatures, hence there needs to be a plan and capability in place to manage this.

How Does Strategic Sourcing Add Value to Your Procurement Activities?

In conclusion, strategic sourcing is a vital process that enables organizations to optimize their procurement performance, optimize cost, and build strong supplier relationships, but only if leveraged to its full extent. PIR’s approach is designed to provide trust for all involved parties. Focus is on securing the strategic goals and objectives and ensuring long-term benefits for the customer by focusing on true total cost of ownership. Additionally, we maintain a transparent and fair process that satisfies both awarded and non-awarded tenderers.

By following a structured approach and focusing on key success factors, we help companies ensure the sustainability and competitiveness of their supply chain, ultimately delivering improved efficiency, reduced costs, and enhanced supplier collaboration, ultimately contributing to the organization’s overall success.