December 17, 2021

How Strategic Sourcing Improves Supply Chain Planning

Companies use strategic sourcing to ensure procurement processes are less focused on price.

Miguel Gonzalez

Complex Technology Products Make Resourcing Parts Difficult

Resourcing parts across a global supply chain tends to be a strenuous process, especially if highly technical parts are needed. Due to the increasing complexity of electronic products and the need for faster turnaround times, many companies have started outsourcing their manufacturing operations to specialized OEMs. This outsourcing has resulted in a lack of visibility into their production process, higher inventory levels, and a reduction in profitability.

On average, supply chain managers get around 200+ new emails a day, which makes finding sourcing updates extremely difficult. This influx of emails means program managers are spending more time finding data needed for review meetings instead of using the data to strategize the best course of action. Usually, a separate set of condensed data is placed aside and is updated manually before such meetings.

We consumers usually take these struggles for granted as we buy items such as electronics, cars, or heavy machinery.

The Strategic Sourcing Approach

Some global companies deal with these situations better than others by using strategic sourcing. Traditional procurement strategies choose suppliers based on simple criteria, such as location or pricing. Strategic sourcing is different from traditional procurement because it involves diversifying your supply base by factoring in criteria such as contract negotiations, outsourcing models, supply chain infrastructure and supplier relations.

Companies use strategic sourcing to ensure procurement processes are less focused on price. A good sourcing plan would allow the companies to develop a system that contributes to the value of the business in the long run along with their suppliers.

First, companies analyze their business needs and historical spending. Then an outline of a strategic plan is built based on the hierarchy of corporate needs. Finally, data collection and market analysis guide the selection of suppliers.

The set of steps needed to setup a Strategic Sourcing Policy are as follows:

• Spend Categorization

• Building a Strategy

• Supplier Market Analysis

• Request for Quote (RFQs)

• Selection of Supplier(s)

• Measure & Monitor

• Supplier Relationship Management (SRM)

The biggest hurdle for Procurement business leaders is not having data or a platform to digitize all this information. Indeed, many companies do not have the capabilities to read and update their resourcing data in real-time. Not being able to dissect data and do relevant analysis and a lack of robust collaboration hampers the ability to conduct strategic sourcing.

A Path Forward

Both companies that use traditional procurement strategies or strategic sourcing devote a massive amount of their work hours sending emails and setting meetings just to get status updates on their components. This approach is a laborious manual process many businesses don’t realize they can avoid. Supply chain managers don’t need to check in daily with many key players. Instead, there are ways to have suppliers provide up-to-date data themselves. Imagine a scenario where a set of components status, inventory, cost, location, or any relevant piece of data needed from a supply chain point of view is provided almost in real-time. With today’s advanced Procurement Control Towers, this data and many other metrics are easily achievable.  

Does resourcing parts need to be such a laborious manual process? Not necessarily. Digital Twin enabled Procurement Control Towers to allow all key players in a supply chain to access actionable data without the need for back-and-forth communication.

It’s important to note that strategic sourcing is not a replacement for traditional procurement? Instead, strategic sourcing is first an output of a well-defined and structured Procurement Control Tower, which in turn makes the procurement (the day-to-day tasks) a much more streamlined process. Managing large resourcing projects is not easy and shouldn’t be treated lightly. It can’t and shouldn’t be a manual process, especially considering that today's digital solutions enable companies to manage projects of any scale properly.

Tada’s Procurement Control Tower is a powerful solution that allows companies to:

• Allow PM’s productivity to increase by up to 40%

• Reduce email generation by up to 70%

• Reduce by up 70% Spreadsheet generation

• Ensure 100% collaboration as key role players update data in real time