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.
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:
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.
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.
The following are outcomes of this approach:
With a focus on both cost reduction and service improvement, we engaged GRA to design and lead a company-wide Procurement Transformation. GRA worked closely with us to design and implement a new operating model and deliver significant improvements in procurement governance, processes and systems, whilst also managing a program delivering multi-million dollar savings.
– David White, Manager Enterprise Procurement, Aurizon