Every business benefits from a well-outlined sourcing process. Strategic sourcing helps to boost the efficiency of product creation, allowing products to reach the consumer market faster while reducing costs and risk. But, new entrepreneurs might wonder what is strategic sourcing in procurement, and how can entrepreneurs develop a sourcing process that makes sense for their business plan?
Sourcing is complicated even for the simplest business, and every business will eventually develop a unique sourcing process that perfectly suits their needs. However, for entrepreneurs looking for guidance getting their sourcing journey started, here are the six essential steps to sourcing solutions.
Define Spend Category
Spend as it applies to the procurement process can be difficult for some businesses to quantify. Does spend include the costs associated with employees involved in sourcing, or is it purely related to the cost of the goods and services being sourced? There are many different types of spend, such as influenceable spend, managed spend, contract spend and more.
At the outset of the sourcing process, those involved need to clearly define the category or commodity, with specificity identifying the size, type and audience of the good or service they are sourcing. This will help them narrow down the details about the spend associated with this procurement process.
Research the Supply Market
Supply chain disruptions can occur when prices change unexpectedly, and a business does not have systems in place to account for the new price. Fortunately, fluctuations in price are relatively predictable, especially after a business has researched and analyzed price patterns of the past. Key price-related data to pay attention to include costs of raw materials, costs of labor and costs of logistics. It might be worthwhile to compare prices in different regions around the globe to better understand pricing patterns and identify alternative solutions should the need arise.
Develop a Strategy
Business leaders should work with those experienced in procurement to develop a sourcing strategy that makes sense. The right strategy considers the effects of sourcing on all stakeholders, as sourcing processes have the potential to impact the brand. Procurement consulting is available for smaller businesses that cannot afford to keep a procurement team on staff full-time, but as a business grows and adds increasing complexity to its supply chain, it will be beneficial to have a procurement specialist available to adjust the sourcing strategy as needed.
Find Potential Vendors
Vendors are a business’s partners within the supply chain; they should be working with a business to develop the exact goods and services a business requires. Not all vendors are appropriate for all businesses, so businesses need to be capable of filtering through their options to find the perfect procurement partners. Businesses can vet potential suppliers by using a request for proposal process, which allows businesses to evaluate bids that include good- and service-related specifications, cost breakdowns, delivery requirements and more.
Finding the right vendor involves speaking with different vendors to better understand exactly what individual vendors can deliver. Short-listed vendors should undergo multiple rounds of interviews and meetings, so business leaders can peel back the marketing pitch and see how vendors behave and operate. The final selection should provide businesses with a vendor that meets all of the most important criteria, and a contract should solidify the relationship between business and supplier.
Execute
Once a business knows what it is trying to source, understands where the opportunities for sourcing lie, has a solid sourcing strategy and finds the perfect possible vendors, what is there left to do but begin sourcing? Execution of the sourcing process should involve any party affected by the process, from the procurement team to internal customers. Generally, the more transparency involved in execution, the quicker a business can recognize and resolve issues.
Review
Every business process must conclude with tracking progress and reviewing results, and sourcing is no different. Businesses can employ tech solutions to aid in the analysis of data associated with sourcing, so business leaders can optimize the value they receive from every step of the process.
Sourcing will always be complicated, but businesses can make the process as streamlined as possible with the right tools, the right expertise and the right attitude.