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Strategic sourcing is about managing the cost of purchased goods and services, and this is one of your most important value creation levers, even more so than, in many instances, market share.
How can this be achieved? Through the utilisation of the traditional purchasing levers we all know so well: we negotiate price with our suppliers, and aggregate purchasing to qualify for volume discounts. In addition, we become more critical in our supplier selection.
Right?
Partly. But much like an iceberg, most of the opportunity in strategic sourcing is hidden. The traditional purchasing levers we use so often can be equated to the visible tip of that iceberg – they represent only a part of the opportunity offered by strategic sourcing. More importantly, they are rarely sustainable on their own.
They must be supported by what lies beneath the surface: world class purchasing practice which makes use of the more advanced cost management techniques that focus on reducing the total cost of acquisition AND the total cost of ownership.
This includes finding opportunities within our own organisations to reduce costs.
For example, you could try to identify and then eliminate price disparities on similar products; change specifications to purchase components or equipment which may be less expensive or more readily available; purchase equipment or materials which requires reduced maintenance, improves yields, reduces wastage or lowers energy consumption.
You could also improve management of inventories and write-offs, rationalise order processes and eliminate backdoor systems. Indeed, you could do a great many things – very little of which traditionally falls within the ambit of the procurement specialist.
But, the re-engineering demanded in order to leverage internal opportunities for lowering total cost of ownership is very much a part of the strategic sourcing process.
And so is looking for joint opportunities with your suppliers and, if necessary, your competitors.
What does it cost your supplier to produce the widget you need for your gadget? Couldn’t you change your specifications so that your supplier could develop something which might suit your needs better or as well – and cost you both less? Think how much you (both) could save if you shared your forecasts with your supplier so that you could optimise order quantities and production runs.
You could also work together to find ways to reduce packaging returns; improve R&D; jointly evaluate capex plans; reduce transport requirements and eliminate double handling; value-analyse specifications, product variances and tolerances; examine quality assurance needs and share warranty risks.
Clearly it would not be appropriate to apply each of these levers to your procurement process for every item you buy. Strategic procurement practice is about identifying the lever that would deliver the most significant value against a particular purchase or commodity group.
Little of this would be possible without solid and considerable human purchasing and re-engineering skills. And while none of this has anything to do with the technology-focused approach of e-procurement; it is important to apply strategic sourcing skills prior to, or in combination with a technology solution, to ensure that the benefits of strategic sourcing are instilled and maintained.
Miraculum is proud to welcome Wallace Office Shop, Ndlovu Corporate Supplies and Select Vending to the community.
Gartner has written a number
of papers on e-procurement
across various markets. One of the central themes arising
from these papers is that:
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