Let’s be honest. With a show of hands, when we say “Strategic Sourcing” how many of you think, “It’s really just about buying at the cheapest price?”
While Engineers, Program and Brand Managers get much of the credit for successful New Product Development and Commercialization of new product launches, the unsung hero is often the team who wears the Strategic Sourcing hat!
In our experience we find that Strategic Sourcing has no less than 6 critical functions to call their job a success:
Clearly costs matters and need to be in line with the product offering and other suppliers. When the Pentagon was discovered buying hammers for $400 US Taxpayers went crazy – and rightfully so! That is the opposite of ‘strategic sourcing’ at work!
2. Cost & Quality
Sourcing works to achieve total cost reductions AND improve quality simultaneously. How? Inventory strategy (turns), payment terms, volume price breaks or rebates, and accurate forecasting to name just a few.
Looking beyond the item to the big picture total category spend. Looking for opportunities to improve cost, price, and value AND implementing them.
Some buyers look for a ‘vendor’ while Sourcing is looking for long-term relationships. An alignment of goals between OEM and Contract Manufacturing partner creates synergies, efficiencies, multi-years contracts, and standardization to the organization. Internal processes lead to efficiencies.
5. Leverage Spend
Beyond the part and the category exist opportunities for Sourcing to streamline suppliers (and the cost to manage multiple suppliers across multiple lines), bring consistency to pricing, and ultimately drive down purchase price by securing better pricing for larger purchase orders. Economies of scale!
6. Best Practices
That’s an overused buzzword most of the time, but larger organizations with a hefty spend benefit from a team of sourcing managers (or Global Sourcing and Supply Chain Directors) who meet regularly to share what has been working for them. Moving beyond who gets the credit ultimately saves the organization tons of money.
The strategic sourcing team is certainly concerned about price, but the great ones are also looking to:
- Improve operational efficiencies
- Provide standardized pricing across the entire organization
- Increase quality of product and suppliers
- Develop relationships with suppliers
- Open access to new/better suppliers and weed out poor suppliers
- Diversify the supply chain
- Share those best practices within the organization