A step-by-step guide on strategic sourcing and optimisation

Procurement is the key driver in  maximising effectiveness of business strategy and achieving sustainable cost reduction, in an organisation.

Procurement processes in a typical organisation, across public and private sectors, rely heavily  on complex and inefficient processes, with unclear focus and compliance issues.  It is naturally then a valuable source of opportunity for entire Supply chain operating model transformation.

Procurement process is the first strep in process simplification with technology adoption, understanding the operational realities of what is going on in operations through targeted collection and analysis of data and information.

We understand, from our experience from reviewing and reengineering procurement processes, that Procurement function needs to:

• Have a detailed spend map across your entire organisation, updated quarterly.
• Be a driver of sustainable savings (when, where, why and how) across the organisation.
• Be engaged with the wider organisation to understand how procurement can reduce costs across the value chain.
• Ensure that value is realised through contract management and supplier relationship management frameworks which are operationalised.
• Be delivering procurement within an operating model that connects commercial and technical capability to drive optimal client outcomes.

Strategic Sourcing

Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. It expands upon traditional purchasing activities to embrace all activities within the procurement cycle, from specification to receipt and payment of goods and services.

In many government and commercial organisations procurement has now become recognised as a fundamental enabler of business strategy and a preferred method for achieving sustainable cost reduction. It is often a source enablement and a window into understanding what is really going on in operations through data and information.

Based on our experience in working with organisations to improve their procurement outcomes, we believe that in your procurement function right now, if you are unable to ‘tick these boxes’ chances are that money is being left on the table, commercial decisions are being made in isolation from the business and antiquated processes and systems are a barrier to realising the full potential that procurement can deliver. Furthermore, compliance to strategy and process will be encumbered by the increasing cost to change.

By focusing on developing the right capabilities, whether around product launch, strategic sourcing, manufacturing, technology or your distribution network, a high-performing supply chain can contribute significantly to differentiation. It sounds like a tall order, but our research demonstrates that leading business process improvement organisations manage their supply chain as a strategic asset to drive differentiation and boost performance and profitability.

In today’s global economy, supply chains are at once critical to an organisation’s success and highly vulnerable to disruption. Increasing demands are being placed on organisations as a result of changing customer preferences and expectations. The increasing frequency of disruptive economic, environmental and social events work to compound this.

Why an effective sourcing strategy so important?

Having effective, efficient procurement can mean the difference between a company achieving astounding success and collapsing completely.

Your business — whatever your industry or business model — exists to do one thing: convert incoming resources into profits by turning those resources into sellable products or services. To achieve that, those resources must be procured in the most efficient, effective way possible—anything else means waste and reduced profit margins.

The strategic sourcing team has an important task to contract suppliers and define a standard set of preferred items for commodities such as office supplies, IT products, training, spare parts, work clothes, catering, protective wear, and marketing material. These are examples of products and services that can be ordered through catalogues and eForms that are used to order configurable items. Categories such as temporary labour, facility management, transportation services, one-time events, complex projects, and other non-standard products and services make up the majority of the indirect spend volume.

Procurement optimisation helps to eliminate the waste in supply chains, whatever the source or purpose may be. Modern software solutions will prove a major benefit in this effort, where business simulations can be converted into prescriptive analytics.

Most of the effort involved in modern optimisation efforts is in identifying, acquiring, customising, and utilising the right enterprise optimisation solution for your business.

While these tools do the bulk of the work in modern optimisation efforts, they can only do what they are programmed to do. A business still needs to research new potential moves, stay abreast of upcoming shifts to market and industry landscape and know what competitors have been experimenting with to achieve superior results!

If you would like to learn more about procurement optimisation and what it might mean for your business, speak to VCG to today.