Has your company been doing things the way it’s always done them, at least in terms of sourcing, supply chain risk management, and supplier relationship management? Well, it’s time to shake things up.
Strategic sourcing best practices can help your company save money by reducing costs at every link in the supply chain. You’ll create more for your own company and for your suppliers, too. And that will mean bigger profits, less risk, and stronger supplier relationships. You’ll be able to save money across the supply chain, while still creating plenty of value for your own organization and your suppliers, with spend analysis keeping an eye on areas where additional savings can be had.
These days, sourcing is about considering the many factors that can drive supply chain costs, optimizing your inventory, making the most of the software and other tech tools at your disposal, and meeting your social responsibilities as a corporate organization.
1) Contracts Should Be a Function of the Supply Chain
What’s your company’s contract management strategy? Do you even know where your contracts are? Too many organizations get those documents signed, toss them in a drawer or in some out-of-the-way digital file folder, and leave them there to molder, forgotten, for the rest of time. You’d be surprised how many companies don’t have a contract management strategy, or, if they have one, it’s haphazard at best.
Procurement teams work hard to negotiate favorable contract terms, but those savings often fall by the wayside as companies fail to enforce contract terms or even clearly communicate contract terms and obligations to all involved parties. Give the responsibility for contract management to your supply chain organization, and make sure they have the software tools they need to keep contracts organized in a central location, and to leverage contract terms to maximize the savings your procurement team negotiated for.
2) Think Total Cost of Ownership, Not Purchase Price
Let’s say you buy a new car. Do the costs of ownership end when you pay the sticker price? No, as you have to buy fuel and car insurance, get regular oil changes and maintenance, and occasionally pay for repairs. You have to pay taxes and registration fees. The cost of a new car is much more than what you paid for it — the total cost of ownership involves the cost of repairs, maintenance, and operating costs.
The same is true of the goods and services your business buys from suppliers. That’s why you have to stop thinking in terms of the price of acquiring a new contract and instead frame those costs in terms of the total cost of ownership of the contract across its lifetime. When you factor in costs like operation, maintenance, training, storage or warehousing, transport, and so forth, you get a clearer picture of where your money is going and how you can cut costs.
3) Optimize Your Inventory
With economic times growing more uncertain, there’s never been a better time to optimize your inventory so you have just the right amount of inventory on hand. Understocking can increase your supply chain risk and threaten your profits, but overstocking can cost you unnecessarily. It’s not just the cost of buying unnecessary items that’s an issue — storing inventory is not free, and over a few months’ time, the costs of warehousing, insurance, and taxes add up. If your inventory goes obsolete before you can sell it, that’s even more unnecessary cost.
4) Make the Most of Technological Tools
Strategic sourcing best practices recommend the use of category management and other software tools to handle the complex market, data, and spend analysis tasks that strategic sourcing demands. Consider what workflow factors need to be streamlined before choosing the software tool that will best meet your needs. You want a tool that will streamline sourcing by automating data entry and eliminating redundancy errors and human errors; increase efficiency of workflows to speed up transactions; and accurately analyze huge amounts of spend and category data to make more informed buying decisions.
5) Take Social Responsibility Seriously
As consumers increasingly make sustainability and social responsibility a part of their own purchasing decisions, corporations must take social responsibility and sustainability initiatives seriously if they want to stay competitive. Increasingly, requests for proposals ask service vendors and suppliers to elaborate on their sustainability and social responsibility policies. Without real green initiatives and social responsibility policies in place, companies risk drawing criticism and even losing substantial business. From both the sourcing and risk management standpoints, social responsibility initiatives and sustainability programs can help your organization get ahead.
If you’re looking for ways to strengthen your company, cut costs, and build value for your own organization and those of your suppliers, you need to implement strategic sourcing best practices. With a watchful eye on your spend categories and supply chain, you can find new ways to minimize costs without sacrificing value — and that’s a win-win proposition for all concerned.
