Strategic Sourcing

Strategic Sourcing is a holistic approach to procurement which extends beyond price negotiations to deliver the lowest Total Cost of Ownership from supplier sourcing relationships.

Challenges

When making sourcing decisions, there are many factors for an organisation to consider in order to understand the most appropriate long-term solution.

Where organisations over emphasise the importance of price in sourcing decisions, sub-optimal sourcing decisions can occur, resulting in issues such as:

  • Inflated Cost of Goods Sold (COGS)
  • Poor Service Levels
  • High Inventory
  • Disruption, Volatility and Inconsistency of Service
  • Short-term decisions that undermine long-term value
  • Mismatches between Product Quality, Service and Strategic Positioning
  • Lack of Transparency and Visibility of Supply Chain Risks
  • Reputational & Brand Damage
Opportunities

Strategic Sourcing provides an opportunity to broaden the scope of procurement to drive better, more holistic decisions that support organisational strategy, deliver the lowest total cost of ownership and drive long-term value. 

While price is still an important component, Strategic Sourcing extends the sourcing perspective to include drivers such as demand patterns, product specifications, internal processes & usage costs, as well as supplier capability and processes (for example: lead-times, trading terms, flexibility and electronic order management), in order to determine the most appropriate procurement strategy for a category or group of products.

Not only will this identify lowest total cost solutions for the organisation, it will also support a shift to becoming a more mature demand driven supply chain, mitigate supply risk and drive process improvements.

Approach

As procurement specialists, GRA works with our clients to develop appropriate strategies for interacting with and managing sourcing relationships that best match business needs to the supplier market. By analysing and segmenting products based on factors such as market complexity, item value, customer buying power and risk, this approach will enhance your position and drive long term value.

This analysis typically results in a different strategy for different product groups. For example, where the market for high value, critical products is complex, we advocate building collaborative, win/win relationships with suppliers to identify and deliver continuous improvement opportunities and build competitive advantage. Alternatively, for lower value products, the most appropriate approach may involve reducing transaction costs or undertaking price negotiations. Rarely is a “one size fits all” approach suitable.

To support strategy development we can help gather and analyse spend data to give clients an accurate view of what their organisation historically spends on particular products and services, including detailed analysis of prices paid.  Further, we help clients to work with business units to understand likely demand, and to assess the suitability for strategies including aggregation, standardisation and outsourcing. 

Outcomes

The following are outcomes of this approach:

  • Greater alignment between sourcing decisions, supply chain strategy and organisational needs
  • Segmentation of procured products into appropriate management categories
  • Enhanced procurement capability and more effective supplier relationships
  • Greater understanding of the impacts of sourcing decisions
  • Sophisticated view of total cost drivers and levers
  • Enhanced understanding of supply chain risks; less reactive decisions
Benefits
  • Procurement savings – typically in the range of 5-15%
  • Increased spend under management
  • More collaborative, win-win relationships
  • Improved spend visibility
  • Improved supply risk management and less supply-chain disruption
  • Integration of business strategy and operational practices

– BACK TO CONSULTING

Testimonials

GRA’s consultants are clever, system-savvy, ex-Planning Managers from industry – who have hands-on experience in the planning requirements of FMCG. Their engaging, logical, and disarming approach meant that our planning team were happy to cooperate with GRA in full, and also happy to hear GRA’s list of suggested improvements.

– Danny Mellon, GM Planning, Logistics & Procurement, Simplot

Typical results

  • 20-40% inventory investment reduction
  • increased service levels ranging up to 99.9%
  • 10%-15% reduction in supply chain operating costs
  • 5%-20% spend management savings
  • the ability to fund business initiatives from operating cash flow (OCF) improvements
  • improved return on capital employed (ROCE)
  • a minimum 3:1 ROI (10:1 to 30:1 typical)