An Effective 7 Step Strategic Sourcing Process for Procurement
Originally published on November 15, 2020
For successful fleet procurement, a strategic sourcing plan should be based on a 7 step strategic sourcing process. This process allows for the procurement department to evaluate the suppliers used for acquiring goods and services as well the cost incurred, and the quantities required. Not only is strategic sourcing a way to select the most efficient suppliers before any purchasing, but you can align your purchasing strategy with your organisations short and long term goals.
7 Step Strategic Sourcing Process:
Here, we take you through some strategic sourcing best practices to help you achieve an efficient procurement budget.
Step 1. Understand your internal requirements
The first step within strategic sourcing includes understanding your organisation's current needs and strategy and then comparing this to how your procurement process is currently operating. Be sure to consider areas within your current budget where you believe costs can be reduced. This stage is great for improving your procurement departments efficiency but also allows for reflection on areas within your budget where you can reduce or cut costs completely.
Step 2. Analyse the supplier market
Within the strategic sourcing plan, you want to know with confidence that you are getting the best value for money when it comes to the price of goods and services, raw materials, drivers, transport and fuel costs. Conducting an analysis of the potential supplier market will ensure that you are working towards an effective budget, ensuring the procurement department is running as efficiently as possible.
For example, one method for reducing procurement expenses is to consider how to streamline costs within the procurement budget. Fuel costs can often mount up and are a cost that can't be ignored when you have a fleet. Fuel cards are a great solution to reduce fuel costs, save time and work with your budget.
Step 3. Gather potential supplier details
Following your supplier analysis, the next step is to create a supplier portfolio of the most viable suppliers. Due to the inevitable risks within the macro-environment, it's best to gather information on more suppliers than necessary to reduce any possible future supply chain risks. If the chosen supplier ends up not fulfilling your needs, you can come back to this step to evaluate other available options.
Within the supplier portfolio, be sure to note as much information regarding the suppliers, which can include:
- The competitiveness of the supplier market
- The reputation of the supplier
- The business performance of the supplier
- Time turnaround from the supplier
- References for the supplier
Step 4. Create a strategic sourcing strategy
Now you can decide on the type of sourcing or outsourcing strategy that will work best for your organisation. When doing so, consider the aims and objectives of your organisation and which sourcing strategy has a past history of being successful within your market. From developing the sourcing strategy, you will get the full picture of the specifications of the goods and services, a breakdown of all involved costs between you and the supplier, as well as the expected delivery time.
Step 5. Negotiation with suppliers
You now have all the relevant information to compare which suppliers align the most with your organisation's requirements, from step 1. Take time to deliberate the final shortlist between the procurement department through an open team discussion on the potential suppliers. All opinions of the opportunities and concerns of each supplier can be understood and taken into consideration.
Although this could be a timely process, you need to consider the available supplier options very carefully to align with your budget. Once you have narrowed down the options to a final shortlist, you can negotiate with each supplier with the aim of getting the best contract for the costs involved. Following the negotiations, the final supplier can be selected and be sent off for approval from the relevant departments in your organisation.
Strategic sourcing isn't only about cost-saving; it's also about building a trustworthy and long term relationship between you and the supplier. One benefit of a good supplier relationship is that the supplier may be able to complete minor outsourcing tasks, such as taking inventory levels. Not only does this mean that your team saves valuable time, but this also means an area of outsourcing within your strategic sourcing strategy is covered.
Step 6. Implement the strategic sourcing plan
Having informed the successful supplier or suppliers that they have gained a contract, it's time to implement the strategic sourcing plan. You're now turning the strategy previously developed in step 4 into actions. This step involves starting the process of changing from the current supplier to the newly selected supplier, transferring information over and ensuring that there is an ongoing and transparent communication between the procurement department and the chosen supplier.
Step 7. Measure the supplier's performance
The last area to consider within the 7 step strategic sourcing process is to measure the supplier's performance once the supply chain is up and running. Alongside measuring the key performance indicators and how the supplier is aligning with your requirements, it's important to communicate with other departments in your organisation to see how they are finding the supplier as a source. If there are any areas for improvement, there should be open communication between the procurement team and the supplier to resolve these issues.
One strategic sourcing best practice is to consider the strategic sourcing process as a cycle. By repeating this process, you will be able to see if the market of available suppliers has changed and if there's a supplier who can fulfil your needs at a better and lower cost.
The strategic sourcing process can be a timely process; however, taking your time to consider all potential sources will benefit your business in the long run as it reduces any potential risks. You are now on your way to successful fleet procurement. For more effective fleet procurement tips, please check out the rest of our blog.