Recently, it’s been interesting to see numerous LinkedIn group discussions arising between supply management leaders, focused upon what leading procurement groups are doing to provide value after they’ve been involved in “strategic sourcing” for several years.
A common theme in these leaders’ comments centers upon the fact that the practice of Strategic Sourcing achieves greatest value when first applied to spend categories. But once the low hanging fruit has been plucked the first time, we have to climb higher and higher into the trees to find additional benefits.
This article suggests five ways to generate benefits after strategic sourcing has been done the first time around:
Method 1 – Make Sure It Was ‘Sourced’ Right the First Time: Often, the first time strategic sourcing principles are applied to a spend category the organizational culture didn’t allow full leveraging to occur. Trust in procurement was still being earned the first time, and our internal customers mixed more adventurous methods. But now that we’ve been managing that spend category for the full term of the initial contract, our internal customers may be willing to exert greater leverage to achieve additional results. We also should have much better spend data to apply to a new strategy, since procurement has been overseeing the performance of the current suppliers. So use these advantages to identify techniques which should have been applied the first time around.
Method 2 – Don’t Just Do the Same Thing Again: It is unlikely that taking a spend category to market again in the same way it was first “sourced” will generate additional benefits. Recently, I was training a large governmental group in a three day long workshop titled Expert Strategic Sourcing for Government™. An audience member asked about their required policy of bidding every expenditure category upon expiration of any major contract.
I reminded the lady (who directed procurement for four major universities) that Albert Einstein once defined Insanity as “Doing the same thing over and over again and expecting different results“. The audience then agreed that bidding something out the same way again would likely result in higher prices. So we jointly developed a strategy to change the parameters of re-competing the category by further consolidating the supplier base, incorporating additional volumes, and lengthening the resulting agreement. The new sourcing strategy would achieve better results than the first time around.
Method 3 – Re Analyze the Marketplace: Never assume that a marketplace is the same as it was when last sourced. Mergers occur between key suppliers. New firms enter or exit the marketplace. And technological changes can transform an industry. An essential stage of the multi-step strategic sourcing process is to evaluate the marketplace, using tools like the Porter’s Five Forces Model. Proper identification of changes in a marketplace can allow us to approach it with a new sourcing strategy that will achieve improved results.
Method 4 – Collaboratively Leverage Key Supplier Relationships: If a strong supplier relationship(s) has been developed during the initial strategic contract term, consider expanding/extending that relationship in exchange for negotiated benefits. Many suppliers are eager to extend good agreements by giving concessions they initially strove to protect.
Method 5 – Expand Focus Upon Supplier Management: While strategic sourcing should certainly remain a key part of a procurement group’s focus, top groups are refocusing their efforts into Supplier Relationship Management (SRM). A pro-active approach to SRM not only ensures the capture of benefits identified through Strategic Sourcing, but it can often increase cost savings by between 5% and 12%.
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Strategic Procurement Solutions helps clients improve their overall performance. The organization does this through its 360o Supply Management Efficiency Reviews, Procurement Transformation Project Support, and Onsite Training Programs, such as Expert Strategic Sourcing™ (3 days), Strategic Sourcing for Government (3 days), and Supplier Performance Management (2 days). For information about any of these services, please contact Info@StrategicProcurementSolutions.com