The role of sourcing and procurement within strategic supply chain management

ProcurementTechnically, sourcing and procuring are different sides of the same coin. Sourcing refers to the practice and skill of being able to track down sources of supply. Procurement refers to taking those sources of supply that have been identified as being purposefully advantageous in theory, and molding them into realizable sources of supply that are deliverable advantageous in real terms.

Sourcing and procurement- working in tandem

For example it may well be apparent that the cost of producing steel is lower in India than it is say in the USA. But how viable financially is that source once transport costs have been taken into consideration? It doesn’t stop there either. Taking the same analogy into consideration, what are the respective lead times, and are there any political or social ramifications to be considered? How about green supply chain considerations? To be fully effective, sourcing and procurement must be calculated as a whole, in order to maximize the benefits.

The emergence of strategic sourcing and procurement

Sourcing and procurement is now playing a more strategic role than it ever has before. It is now recognized as the key factor in helping businesses to achieve and maintain a competitive edge. It does this by keeping costs down, whilst providing goods and services in a timely and efficient manner. In order to meet these goals, the relationship between buyers and the suppliers (whether we are talking products or services, including transport, storage and distribution) is more important than ever.

Re-valuating sourcing/procurement capabilities

For businesses that are re-examining their sourcing and procurement departments; and indeed for existing sourcing and procurement functions that are already set up and running, but who are looking in at themselves, conducting self-evaluations; the following questions have to be considered.

  • Exactly what are the crucial skills that procurement departments and organizations need to employ today?
  • How can costs be further lowered without damaging suppliers and buyer/supplier relationships?
  • In terms of global sourcing and procurement, what are the skills and best practices that need to be adopted to achieve set goals?
  • What must sourcing and procurement professionals do in order to transcend the cost saving mentality and go beyond to focus on adding value?

The importance of designing effective sourcing initiatives

In global terms a well developed sourcing strategy can bring about substantial cost savings, somewhere in the region of 15% to 20%. In order to be able to do this from a sustainable point of view, improved cross functional collaboration is absolutely essential.

It’s not just a case of the procurement team sharpening their pencils. Information and input from all departments is vital. Sales order patterns, client behavior, consumer behavior, and the world economy are just a few of the influences that affect product definition.

In-house manufacturing, and outside suppliers need to work ever more closely together in order to develop and expand new capabilities, and to streamline existing processes and production lines.

Buyers and suppliers have to work even harder to join forces, and together, find mutually advantageous approaches to meeting targets.

Strategic supply chain management

Strategic supply chain management is now the key driving force that guides sourcing and procurement. It operates at three levels: the strategic level, the tactical level, and the operational level. The strategic level, (although often scoffed at by the tactical and operational people) is the main guiding light. It’s here that supply chain ideals are set out that are relevant to the business as a whole. It’s here where the dog wags the tail, not allowing it happen the other way round.

Directions from the Ivory Tower

Strategic supply chain management impacts on each and every aspect of the supply chain including:

To return to the analogy of the dog wagging the tail, the decisions that are made at the strategic level are made in order to coincide with the business’s main objectives. Operational concerns regarding products and regionality do not enter into the game at this level. These become the domain of the tactical team who will work with the operational team to best achieve the strategic result that is being sought.

The conductor and the orchestra

Sourcing and procurement may not be the conductor of the orchestra, but they are the brass, the woodwind, the strings, and the percussion. They are charged with taking the strategic, idealistic plans, and turning them into practical reality by engaging effectively with each link in the supply chain.

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One Comment

  1. Wayne,Great advise to slpeuiprs. The thought of procurement circling their wagon’ sounds intimidating enough, without the thought of potentially putting the brake’ on future business.Don’t forget the advise to Chumpion’s the need for an organization to present one voice to the supply market is also central to leveraging spend. Sitting down with them to describe how they work against the business objective can provide a valuable influencing opportunity for procurement, help build stakeholder trust and collaboration. Give the bear a cuddle.

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