What are strategic procurement and global sourcing strategies?

A procurement strategy is a continuing plan to economically obtain the required supplies from a list of competent vendors who will distribute quality goods on time while adhering to the procurement terms. This strategy focuses on components such as cost reduction, global sourcing, risk management, green purchasing, total quality development, and supplier management and optimization.

Global sourcing strategies is a procurement strategy where organizations make efforts to find the least expensive place globally for manufacturing their products. Most organizations opt for global sourcing because labor costs and raw materials are lesser abroad. Strategic procurement and global sourcing strategy center around procurement decisions in supply chain management.

Why businesses need to have strategic sourcing and procurement plans

Over the years, globalization and strong competition in the global marketspace have forced businesses to pursue global procurement strategies that include dramatic price reductions, optimized cycle times, increased responsiveness to clients, and improved financial conditions, among others.

Digitalization and emerging technologies have also distrusted the ways businesses attempt to satisfy consumer needs. Consequently, organizations have been forced to trail globalization strategies for their procurement management to efficiently support their globalization process.

The challenge in terms of procurement is preserving business continuity in spite of disruptions such as recessions, global political upheavals, natural disasters, or the recent COVID-19 pandemic. You need prudent planning to create and enhance a sourcing strategy that offers value in form of insight-guided decision making, improved supplier relationship management, competitive performance, and operational productivity. Rather than just beneficial return on investment (ROI).  

An essential component for overcoming these challenges is strategic procurement and sourcing. This strategy makes it possible to fulfill business demands with optimum productivity and value. Organizations that make the necessary investments to develop strategic procurement and sourcing strategies are rewarded with fortification against unnecessary business risks while releasing the capital needed for innovation and growth.

Techniques for successful strategic procurement and global sourcing strategies

The following are some of the ways businesses can implement successful strategic procurement and sourcing strategies.

Assemble a specialized team

The first step to implementing successful strategic sourcing is not by formulating a checklist. Rather it is by building a specialized procurement team. Assemble a cross-functional team of experts from finance, sourcing, operations, and other participants who are directly engaged with the product during the development phase.

Assign a team leader and involve subject matter experts where applicable. Develop a scope of work and plan to outline actions to take in managing the sourcing and procurement strategy.

Identify what is working and what isn’t

The next step is the needs analysis. You need to scale your current purchase processes including cost-effectiveness, pain points, roadblocks, efficiency, and so on. Vendors in your supply chain should also be benchmarked including compliance and performance data or redundancies for spending. Also, you need to recognize the goals you’d like to set for optimizing your current purchase process and the vendors in your supply chain.

Perform market research on suppliers

The objective of the market research is to evaluate the markets that will likely offer consistent, dependable, and high-quality services, raw materials, or finished goods. Afterward, you will analyze the capacity of your current suppliers in the current market conditions. Your suppliers should be assessed based on factors like creditworthiness, financial stability and performance, reputational issues, and their historical and present compliance with regulatory standards.

Strategic sourcing development

It is not enough to know what you want to buy and who you want to buy from. You also need a strategic plan to determine how you should approach your buying. Your sourcing strategy will determine how you make purchase decisions. You can evaluate existing protocols or create new ones based on your targets for supplier relationship, overall business strategy, risk management scheme, etc.

You can also implement strategic partnerships formulated via advanced contract management to establish lasting agreements that are valuable for both parties. Developing a digital sourcing strategy will help you implement the assets required to obtain enormous returns and make the sourcing process agile.

Negotiations and competitive biding

At this stage, you need to implement your strategies. You need to put the project out to bid. Your team may need to send out emails to align with the organization’s mission. You may need to adopt procurement software in place of your traditional manual process. This software can trail the procure-to-pay process end to end.

Afterward, make sure you negotiate with suppliers only when you are convinced that the supplier can perform the requirements of the request for pricing (RFP). While a face-to-face negotiation is always ideal, the current social-distancing measures may necessitate a virtual negotiation. Furthermore, the legal team can handle the contracts while the sourcing team can function as the go-between for both parties.

Measure and review performance

Effective communications and partnerships are crucial at this stage to manage the relationship between suppliers and your company. You may assign an expert for this task which could be someone in operations, sales, or other stakeholders. Furthermore, the team can re-evaluate the key performance index (KPI) you’ve established for the internal procurement process and vendor management.

Reference List

DelVecchio, L. (2020, July 28). Strategic sourcing plan: The 7 key steps. PLANERGY Software. PLANERGY

Leng, L. C. (2018, January 22). Eight essential steps for an effective global sourcing strategy. SIPMM | Singapore Institute of Purchasing and Materials Management. SIPMM

Procurement strategy | Develop a strategy for procurement in 9 steps. (2020, October 12). KiSSFLOW. KISS-FLOW

Rasmussen, P. (2018, July 10). How to implement a successful global sourcing strategy. East West Manufacturing. EAST-WEST MFG.