Strategic sourcing to drive bottom-line impact

Strategic sourcing software is a digital tool or platform that helps companies with procurement. A strategic sourcing platform enables companies to have the best workflows for sourcing suppliers as per business requirements. Companies use strategic sourcing solutions to negotiate ideal terms and conditions with suppliers, contract development, and approvals. Companies use strategic sourcing tools to find suppliers that offer the best quality materials at the most reasonable costs. This helps companies apply strategic procurement solutions and save unnecessary expenses.

The four essential steps of strategic sourcing are spend analysis, market analysis, development of sourcing strategy, and supplier selection and management. With the best strategic sourcing software, you will be able to get a clear idea of areas of your business that need more investment and areas of your business where you can cut costs. This can help you manage business expenses more efficiently. Market analysis refers to a thorough evaluation of the market to get the best suppliers who offer optimum costs. This, in turn, helps in finalizing the best vendors and relationship management with them.

The 5 P’s of strategic sourcing are power, processes, people, prevention, and planning. Power refers to the authority that the procurement team holds over the entire process. Processes, on the other hand, refer to the systems and steps used in the procurement process. These steps are followed by everyone in the team. People refers to those who are involved in procurement i.e. mainly the vendors or suppliers and the procurement team members of the business. Planning refers to the various strategies that a business has in place for procurement. Finally, prevention refers to the control measures adopted by the business to mitigate risks.

The most popular technique used in strategic sourcing is spend analysis. Spend analysis refers to a thorough analysis of a business’ purchase data. This helps in identifying the main areas of expense. Businesses use this information to identify ways to reduce costs and manage budgets better to maximize profits. An ideal strategic sourcing software helps in identifying inefficiencies. Spend analysis helps in categorizing spending followed by a detailed study to understand how a business can manage its finances better.

An ideal example of using strategic sourcing software would be a company shortlisting a list of suppliers for a specific requirement. The procurement team of the company then compares samples with the commercials offered by each supplier and finalizes one supplier out of them. The team then negotiates the contract and finalizes a draft that is approved by all and raises the first purchase order. Finally, the supplier receives the purchase order and begins the work.

While a strategic sourcing platform serves multiple advantages, it can also affect companies in a negative way sometimes. One disadvantage of a strategic sourcing tool is the requirement of high initial investment as implementing a strategic sourcing software can be an expensive affair. Another disadvantage is the resistance of internal procurement teams to adapt to new tools and processes. This happens when they are used to traditional methods of procurement. Lastly, complex processes to manage multiple suppliers can often lead to mistakes and cost money to the business.

Strategic procurement refers to a systematic approach to procuring goods and materials by a business as per its requirements. Strategic procurement helps in sourcing the right goods and materials and also helps companies in raising POs and ends with payment to suppliers. Strategic sourcing software usually helps businesses follow workflows for strategic procurement, thereby saving costs and maximizing profits.

While strategic sourcing helps in sourcing the right vendors and then negotiating terms of work and developing contracts, strategic procurement emphasizes the process of procuring the right goods for the business. Strategic sourcing also helps companies in maintaining long-term relations with suppliers whereas strategic procurement focuses on tasks like raising purchase orders and obtaining the materials from vendors.