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    Strategic Sourcing Success – Techniques Deployed by Leaders in S2P

    Strategic Sourcing Success – Techniques Deployed by Leaders in S2P

    Strategic Sourcing Success: Best Practices and Key Strategies

    Of course, there are many definitions of source-to-pay but put simply, strategic sourcing is a data-driven approach to securing the best value for your organization from its strategic suppliers. It is a process that creates efficiencies across all spend categories, minimizes supply chain risks through improved supplier selection and awards, while giving visibility into pricing and forecasting. In the end-to-end source-to-pay (S2P) process, strategic sourcing is the link between spend analytics, category management and contracts management, and is supported by supplier intelligence.

    How Has Strategic Sourcing Evolved?

    The concept of strategic sourcing goes back several decades but the Japanese business writer, Toshihiro Nishiguchi, gave a formal definition in his seminal work, Strategic Industrial Sourcing: The Japanese Advantage, published in 1994. Nishiguchi set out eight steps in strategic sourcing: 

    1. Assessment of a company’s current spending (what is bought, where, at what prices?) 
    2. Assessment of the supply market (who offers what?) 
    3. Total cost analysis (how much does it cost to provide those goods or services?) 
    4. Identification of suitable suppliers 
    5. Development of a sourcing strategy (where to purchase, considering demand and supply situations, while minimizing risk and costs) 
    6. Negotiation with suppliers (products, service levels, prices, geographical coverage, Payment Terms, etc.) 
    7. Implementation of new supply structure 
    8. Track results and restart assessment 

    This model has essentially stood the test of time. However, the source-to-pay technology that has been developed over the past 30 years allows us to tweak it somewhat, in terms of content as well as using contemporary terminology. We normally now refer to the first step as spend management and we use spend analytics technology to aggregate and explore spend data. However, what’s really missing here needs analysis. 

    The assessment of supply markets is broken down, at least in large organizations that source strategically, into category management, with a category manager assessing the supply market for similar products and services sought. 

    “Negotiation with suppliers” implies direct human interactions: face-to-face, by phone or email etc. But today this is largely executed electronically, for example by eSourcing events and with sourcing optimization software.  

    We also now break down the negotiation stage into sourcing and final negotiation of contracts. 

    Finally, when it comes to supply chain collaboration, it’s an ongoing process rather than a once-and-for-all implementation of a “supply structure”. In today’s fast-moving environment it is essential to stay flexible in strategic sourcing. Agility, the ability to take advantage of opportunities and avoid risks, is all-important for strategic sourcing, and must figure in drawing up strategies.

    Tactical Versus Strategic Sourcing. What’s The Difference?

    We need to point out that not all sourcing is “strategic”, nor should it be. Strategic sourcing requires intensive analytical effort and relationship-building, which may make no sense for certain categories – low value and non-strategic like paper clips for example (and in some cases high value and non-strategic if there is a short-term need). Such categories are better suited to tactical sourcing. 

    Tactical sourcing is ideal for a.) emergency purchases and b.) those purchases which do not have a significant impact on operational continuity or the bottom line. It is a reactive approach to procurement that focuses on fulfilling immediate needs at the lowest price, usually in categories where there are many alternative sources of supply. But there is a distinction between price and value. 

    Tactical sourcing of high-value categories may result in missed opportunities for long-term cost savings. For example, one factory or department might make a quick purchase to meet an urgent need, while a broader opportunity exists to consolidate spending across business units and source strategically. This approach considers each supplier’s strengths and weaknesses within a category for long-term value. 

    In contrast to tactical sourcing, strategic sourcing is a proactive, long-term approach to sourcing that involves evaluating suppliers to create strong supplier relationships based on reducing total costs while maximizing value and quality. 

    Small and medium-sized businesses tend to make more tactical sourcing decisions, because they cannot invest the time necessary to study markets and nurture supplier relationships. They buy goods when they need them, and their purchasing decisions are determined by pricing and availability. Larger organizations are more inclined towards strategic sourcing and have the time and resources to consider total cost of ownership (TCO), in which price is one of many factors. The regulatory constraints (for example on ESG issues) are greater on larger organizations, and these must be built into the decision process. Thus, strategic sourcing makes more sense when done at scale.

    How To Draw Up a Strategic Sourcing Plan

    Strategic sourcing has evolved with the rise of source-to-pay technology, leading to a modern seven-step process focused on efficiency and value, including: 

    • Needs Analysis –The needs analysis stage of the strategic sourcing process involves analyzing the current situation and understanding the needs of the business regarding the goods or services that should be sourced. These need to be aligned with the overall business strategy. Some companies compete on cost but there are many other possible dimensions of competitive strategy such as customer loyalty, quality of service, reliability etc. In needs analysis you must therefore work with corporate leadership, business strategists, buying departments and other stakeholders to identify what the business’s specific requirements are in terms of quantity, quality, delivery times, compliance and other factors. Having access to data on current spending with your existing supplier base and the ability to analyze that data is a clear advantage. When you can identify gaps and weaknesses in your current sourcing strategy, you develop a clearer understanding of the business’s future needs and can execute more precisely. 
    • Market Research – You now need a list of potential suppliers who can meet the needs of the business. Include current suppliers that have performed well and with whom you have good relationships. But also look at alternatives, especially if the needs analysis revealed high priority issues, or the terms of doing business have changed, like the imposition of tariffs or trade embargoes. This extensive market research is made much easier with access to supplier intelligence databases. Advanced technology can consider the strengths and weaknesses of each supplier on your list under headings such as price, reliability, location etc., weighting each of these criteria based on your needs and priorities. In short, a diverse list of potential suppliers that have a range of options to choose from is essential to covering your needs while minimizing risks.  
    • Develop A Sourcing Strategy – We are now at the heart of the issue: decision-making. Where and how to buy strategically important goods and services in a way that optimizes value while minimizing risk. Consider current and potential suppliers to get the most out of our supplier pool. List the selection criteria best suited to your goals, capabilities, and resources after determining your company’s purpose and the minimal requirements for suppliers. Form a cross-functional team with essential stakeholders. 
    • Select Your Sourcing Process – Soliciting RFXs from suppliers is the next stage after completing the supplier market research. RFX stands for Request for Information (RFI), Request for Quotation (RFQ), and Request for Proposal (RFP). These terms represent different stages and methods of supplier engagement depending on the complexity of the sourcing need. 
      • RFI (Request for Information): This is typically the initial step in the sourcing process and is used to gather general information about suppliers and their capabilities. It’s a broad inquiry to explore the market, assess potential suppliers, and learn about solutions they can provide. RFIs are often used when you are not sure what specific products or services you require or when you are unfamiliar with the supplier landscape.  
      • RFQ (Request for Quotation): An RFQ is more specific than an RFI and is typically used when you know (more or less) exactly what you need. This stage focuses on obtaining detailed pricing information, including terms and conditions, from multiple suppliers. Suppliers respond to an RFQ with their prices, and you can evaluate these quotes to choose the best offer. 
      • RFP (Request for Proposal): The RFP is a more formal and detailed request for when you require a customized solution or when the procurement involves complex or high-value contracts. RFPs are therefore more frequently used when you are looking for proposals that not only address pricing but also value-added services, technical specifications, and supplier expertise. Soliciting an RFP is thus quite a complex process, which can be made easier with guided RFX and eAuction configuration, event creation, followed by bid analysis using advanced analytics. 
    • Assessment Of Awards and Negotiation of Contracts – While source-to-pay software plays a huge role in today’s source-to-pay process, there is still an important human element involved in assessing the bids and making final award decisions. Procurement teams must assess supplier capabilities, risk factors, and total value beyond price, ensuring contracts align with long-term business goals. S2P technology simplifies this process by centralizing data, automating compliance checks, and providing real-time insights to support informed decision-making. 
    • Supplier Onboarding and Supply Chain Collaboration – An often overlooked or underestimated challenge is supplier onboarding. A lengthy or cumbersome onboarding process can delay the integration of a new supplier and may result in inefficiencies or unnecessary friction. If paperwork, compliance checks, or other formalities take too long, it can stall the supplier’s ability to start fulfilling orders or integrating effectively into the buyer’s supply chain. Streamlining the onboarding process through digitalization can therefore deliver huge benefits. The JAGGAER Supplier Onboarding Platform automates document submission, approval workflows, and data collection to speed up the process and reduce time to value. Having a structured, well-documented onboarding plan and clear timelines helps ensure that no steps are missed. 
    • Measurement, Monitoring, and Feedback – Supplier selection and onboarding is not the end of the strategic sourcing process, it’s the start. The most crucial phase is one that is constantly ongoing: to accurately evaluate how well suppliers perform in addressing the needs and goals of your organization based on the terms set out in the contract. Suppliers must be monitored individually but it is increasingly the case that they should also be monitored in the broader and deeper context with regard to the extended supply chain. This helps businesses to recognize supplier risks and create plans to prevent supply chain interruptions. 

    Strategic sourcing is a continuous process rather than an initial step. Market conditions can vary over time, or even overnight, because of the changing global environment. New suppliers emerge, existing ones change their business strategies and face their own supply chain disruptions. To stay competitive, organizations must regularly reassess their sourcing strategies, leveraging data and supplier insights to adapt to shifting market dynamics.

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