28 Questions to Ask Your Boss in Your One-on-Ones - Harvard Business Review This is the new discipline of capability sourcing.. Out of all the business processes, sourcing can provide the greatest ROI. Cost savings is certainly an important benefit, if not the most important benefit derived from strategic sourcing efforts. It suggests that increasing resilience will be a priority for many as they emerge from the current crisis. This field is for validation purposes and should be left unchanged. Greater focus on capability sourcing can improve a company's strategic position by reducing costs, streamlining the organization, and improving quality. Such capabilities may even be candidates for insourcingthat is, if you determine that your company is really the best at a given function, you may have an opportunity to perform this function for other companies. Lastly, you can elevate your team by ensuring it has time to tackle more pressing business initiatives. 1. Sourcing refers to what are typically known as the upstream processes involved in procuring goods or services. The Case for Making Multiple Suppliers Part of Your Supply Chain Strategy For a few targeted product segments, 7-Eleven has identified opportunities that call for an even deeper level of collaboration. Lets consider a hypothetical example to better demonstrate strategic sourcing in action. In the new era of capability sourcing, companies value chain decisions will increasingly shape their organizations and determine the kinds of managerial skills they need to acquire and develop in order to survive amid increasingly fluid industry boundaries. By leveraging their sourcing data, teams can better prioritize strategic initiatives and resource allocations. Once you get the questionnaire back from each potential supplier, you can create a scorecard for your requirements. Talk with your stakeholders to learn why they are using certain products compared to cheaper alternatives. More consistent quality. But cost reduction is only a secondary benefit. Spend analysis: Your spend analysis tool needs to make it easy to determine what youre buying and at what price, whom youre buying it from, the volume youre buying, and how youre buying. Supplier interviews: Send requests for information from potential suppliers and compare that to what youre spending with current suppliers. Then the company negotiated a long-term service contract with the newly independent entity, First Data. A Clash Between Religious Faith and Gay Rights - The New York Times The benefits of having a sourcing strategy Having a sourcing strategy mapped out is essential for the cost structure and competitiveness of businesses. Companies use strategic sourcing to ensure competitive pricing, high-quality products, and exemplary service. The vertical axis of the map measures how proprietary a process or function is; the horizontal dimension assesses the degree of commonality, both within and outside your industry. In an even deeper collaboration, the company created a joint venture with prepared-foods distributor E.A. Credit-card giant American Express, for example, outsourced its crucial transaction processing function when it no longer provided proprietary advantage. But few companies are ready for this shift. The answer is strategic sourcing. Second-rate materials. This requires a comprehensive supplier management strategy. By looking at your current process youll be able to identify areas for improvement. Strategic sourcing provides several benefits, especially when the strategy is well-planned and implemented with advanced digital procurement tools. This map will help you determine which key capability gaps your company needs to fill. Sween: Combined Distribution Centers (CDC) is a direct-store delivery operation that supplies 7-Elevens with sandwiches and other fresh goods. But as computers automated transaction processing, the economies of scale grew significantly, and individual issuers started to pool their transactions to drive down costs. What is Strategic Sourcing? Here's How It Works | MSU Online With strategic sourcing, they could evaluate a wider pool of viable suppliers and find the best overall value, rather than simply picking the cheapest or fastest supplier. Understanding the What, Why, & How of Strategic Sourcing - Zycus CDC now makes deliveries to stores once, and soon twice, a day. Going forward, Amex was able to focus on the issuing side of the credit card business and enhance its core capabilities in marketing and risk management. Every dollar procurement saves directly affects the bottom line. From office chairs and laptops to software subscriptions and janitorial services, these teams work tirelessly in the background to ensure the business not only functions, but thrives. The first step is to identify the components of your business that represent the core of the core. How to gain visibility and control of your indirect spend. As gatekeepers of the businesss resources, finance and strategic sourcing leaders must stay in lockstep to ensure they meet critical savings targets, resource allocation requests, and growth projections. Keep your process transparent and include the awarding selection criteria and weights so everyone knows how the winner will be chosen. The head of finance systems at Cushman & Wakefield shares Workdays role in the companys transformation journey, and why people are at the center. These are the activities that your company does better and cheaper than its rivals. There are four parts to analyzing suppliers: Market analysis: Determine the scope for your marketglobal, regional, by country, or local supplier. Strategic Sourcing Works Better with the Right Tools, Strategic sourcing is a process that aims to set up procurement teams. What is Strategic Sourcing and Why is it Important? To give time back to the team, Workday customer Hyland Softwaremade sourcing and procurement simplefor its stakeholders by creating a self-service portal that automated common tasks such as ordering office supplies and requesting purchase orders. Reduces Direct and Indirect Costs. Single sourcing gives businesses more control over finding suppliers that align with their company values, such as ethical sourcing of materials or similar labor standards. In response to these challenges, sourcing teams evolved into strategic advisors to the business, leveraging their deep market knowledge to negotiate more favorable contract terms, drive cost savings, and build strong supplier relationships. But all companies need to rigorously assess each of their functions to determine in which they have sufficient scale and differentiated skills and in which they dont. Virgin, for instance, has successfully extended its brand management capabilities from planes and trains to music, mobile phones, personal finance, and even bridal wear. For example, a start-up technology company could outsource its non-core activities, such as payroll processing, which would allow . The necessary information and outputs can be transferred electronically at high speed and low cost. Understanding the Basics: What Is Procurement? Saving isnt just about driving a hard bargainit also comes from increasing efficiency via proactive engagement with stakeholders and suppliers. You can maximise volume leverage to attain attractive pricing. A master's in supply chain management degree is a graduate-level diploma that covers risk management, sustainability, procurement strategy and project management in a business logistics context . Creative problem-solving: Because these teams work with many departments, they are uniquely positioned to solve cross-functional challenges. Strategic sourcing - Wikipedia The third step is a kind of reality check in which you determine whether a capability that is a strong candidate for strategic sourcing can be carried out at a distance without any loss of quality. Here are the top skills that sourcing and procurement team members flex every day to help strengthen supplier partnerships, increase cost savings, and drive bottom-line impact: High EQ: Not to be confused with its cousin IQ, EQ refers to emotional intelligence or the ability to identify and understand both your emotions and those of others. Or they may lead a company to negotiate short-term sourcing contracts to keep options open, rather than enter into long-term relationships. Their combined knowledge of upcoming projects and current contract obligations can help balance business budgets and drive impact to the bottom line. Compare total supply chain costs to ensure youre getting the best deal. Even some of the largest enterprises still execute sourcing activities using a clunky combination of legacy systems, spreadsheets, email, and manual processes. A blueprint for M&A success | McKinsey - McKinsey & Company To attract more customers, 7-Eleven needed to cut its operating costs substantially, expand the range of its products and services, and increase the freshness of food items. You may be able to negotiate to receive small, frequent deliveries and so improve inventory control. Company As strategic sourcing team would first meet with key stakeholdersin this case the companys finance leadersto understand what they need from the new software. What Are The Steps To Strategic Sourcing? Now that you have a short list of qualified companies who could become vendors, challenge your existing supplier by sending an RFQ, or a request for quotation. Are different regions of the world investing heavily in particular capabilitieslike contract manufacturing or customer serviceand will they offer greater cost or quality advantages in the future? Yet only 6% of the companies that outsource are satisfied with the practice. In this step, you find various suppliers and identify the ones you want to use. Yet despite moving at a rapid pace, Keyes remained cautious about losing control and avoided the temptation to take a one-size-fits-all approach to outsourcing. Hosted by Sabrina Tavernise. Where the best opportunities for savings are in indirect spend. Example: 7-Eleven has outsourced all routine capabilities (such as benefits administration and accounts payable) to providers that can consistently fulfill cost and quality requirements. Four Key Strategic Sourcing Benefits | QAD Blog One thing you should know about strategic sourcing is that it is an iterative, and multi-step process that starts with assessing your current spending and ends with your company selecting your optimal supplier having quite a few sourcing requirements. In strategic procurement, youre systematically looking for ways to get the best purchase price throughout your entire supply chain, which gives your company a competitive advantage. HBR Learnings online leadership training helps you hone your skills with courses like Global Collaboration. At this point, you have everything you need to keep the strategic sourcing process running. It can provide a reliable supply chain, better value from direct and indirect spend, and preferential treatment from good supplier relationships. You need to stop focusing on incremental cost improvement targets, step back, and reevaluate your strategy and your capabilities. 7-Eleven had always been a vertically integrated company, delivering its own gasoline, making its own candy and ice. The result of such an analysis will be a comprehensive capabilities-sourcing strategy. After identifying their financials software provider, the team would then enter into contract negotiations, deciding on the length of service, the payment terms, and if/when the contract will be renewed. Recommended Articles Key Takeaways Strategic sourcing is a proactive and comprehensive approach to procurement that aims to identify opportunities for cost savings and supplier performance improvement. Prepare to analyze and reflect on everything youve done and how its helped the company and look for ways to keep that momentum going. Strategic sourcing should consider a companys overall business goals and work to align them with procurement practices. That required the company to train and promote a different kind of manager who was capable of understanding system economics, not just one who knew how to nickel-and-dime the supplier base. A similar shift occurred in the worldwide auto industry. A capability assessment map like the one in the exhibit How Strong Are Your Capabilities? plots each capability according to its cost and quality relative to top-performing competitors or suppliers. With only one supplier, a business can be confident that the quality of the materials it receives will be consistent, assuming the supplier has . As supply chains become more complex, strategic sourcing leaders must also be able to drill down into their tier one, tier two (their suppliers suppliers), and beyond suppliers to better understand how resources are being allocated and ensure their entire value chains are operating in compliance with company policies and regional regulations. And with the decline of the vertically integrated business model, sourcing is evolving into a strategic process for organizing and fine-tuning the value chain. Already, a handful of vanguard companies are transforming what used to be purely internal corporate functions into entirely new industries. This helps you gain leverage in future negotiations. The question is no longer whether to outsource a capability or activity but rather how to source every single activity in the value chain. Youll start with high-level categories like direct/indirect, materials/services, critical/non-critical, and domestic/import. As companies like Chrysler, American Express, and 7-Eleven have discovered, a strategic approach to sourcing can dramatically improve your companys competitive position. Microsoft, for example, became the de facto standard in the computing industry through its skill in writing and marketing software. Read on to discover what our customers have told us about the impact strategic business planning has had on their organizations. With these requirements in mind, the team may then draft and distribute an RFP to multiple software vendors. But only by first taking a broad, strategic view of capabilities sourcing can your company gain the greatest benefit from all of its sourcing choices. Additionally, it ensures that the supply chain is always being served by the best possible suppliers while setting up alternative providers. The first task in strategic sourcing is to get to the correct level of abstraction, the appropriate unit of analysis. While sourcing and procurement are both essential for a holistic spend management strategy, the two terms are not interchangeable. So, to ensure that it doesnt quickly become obsolete, a sourcing strategy needs to consider not only present circumstances but also future alternative scenarios. Thinking and playing the long game You've probably heard prudent financial investing in the stock market should be regarded as a long-term investment. After evaluating the supplier market in step 2 and creating a sourcing strategy in step 3, you can start finding preferred vendors. For 7-Eleven, the core of the core is in-store merchandising and product ordering. Our Workday Adaptive Planning software has an overall rating of 4.8/5 based on 84 reviews from professional financial end users. It's also focused on setting up a reliable supply chain with quality alternatives in case a supplier is no longer available. Organizations can even encourage their suppliers to innovate new products and services. Use these comparisons to define outsourcing relationships: Also structure each outsourcing partnership differently, depending on each capabilitys importance to your companys competitive distinctiveness. Anheuser-Busch helped 7-Eleven develop a product assortment and establish merchandising standards for a new display. Cost reductions are unquestionably one of, if not the most important, advantages of strategic sourcing activities. Procurement, on the other hand, involves downstream processes such as creating requisitions, initiating purchase orders, and ultimately paying the vendor for the agreed-on goods or services. Capabilities that fall in the upper right portion of the map are strong candidates for outsourcing. When it owned its own distribution network, 7-Eleven delivered fresh goods to its stores only a couple of times a week. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that youve provided to them or that theyve collected from your use of their services. In return, Hershey gave 7-Eleven the exclusive right to sell the straw for its first 90 days on the market. These are activities your company does better and cheaper than rivals. As globalization and technology transform more industries, all companies will eventually have to let go of that comfortable but simplistic guideline. Should You Choose a Single or Multiple Supplier Strategy? This will help you determine if you want to stay with your current suppliers or if you can get better deals from other companies. If you havent created that yet, you should still have your spend separated into different cost accounts. Start at the highest level and work your way down. Once youve discovered which capabilities promise high potential for alternative sourcing, the next question is: How should you source them? There are two common strategies you can use as a base for your strategic procurement: Porters Five Forces and A.T. Kearneys Purchasing Chessboard. In this article, we provide an in-depth overview of strategic sourcing, its critical role in the business, and how strategic sourcing systems can empower teams to adapt to a changing world. Global Strategic Sourcing & Procurement Company | Dragon Sourcing What Is an Example of Strategic Sourcing? Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone. In that way, American Express could gain additional scale advantages while ensuring long-term cost effectiveness. Its important to create categories that work from the beginning because changing categories makes analyzing spend more difficult. Together, these finance powerhouses can gain deeper insight into a businesss back-office operations, and can leverage this knowledge to plan strategically for the future. Finding more-qualified partners to. Strategic sourcing is an approach to supply chain management that formalizes the way information is gathered and used so an organization can use its consolidated purchasing power to find the best possible values in the marketplace and align its purchasing strategy to business goals. Creating a sourcing strategy involves examining how you do sourcing now and figuring out where youd like to be. This article takes an in-depth look at strategic sourcing, defining what it is, how companies rely on it, and how business leaders can elevate its role within companies. Anheuser-Busch is also using 7-Eleven store data, provided daily by IRI, to test a new order-forecasting system that would link the retailers orders more tightly with deliveries from the brewers wholesalers. Technology can give strategic sourcing teams deeper insight into supplier relationships and help them better leverage their business for increased cost savings. Digital technologies also help teams easily track savings, monitor projects, and reduce procurement cycle times. receive updates from our blog. For capabilities your company excels at, consider insourcingturning them into new businesses by performing this function for other companies. From negotiating with suppliers to leading performance evaluations and occasionally terminating partnerships that are no longer beneficial, its important that strategic sourcing and procurement leaders can clearly communicate business needs in a professional way. As a result, many companies were left scrambling to shore up disrupted supply chains, ensure their employees could work effectively in a remote environment, and manage their contractual obligations with little insight into their sourcing data. In addition to helping gain more visibility from the C-suite, strategic sourcing solutions can benefit the business in the following ways: Increased efficiency and savings. Supplier relationship management (SRM): SRM tools can be integrated with your ERP system and are designed to serve as a supplier contract lifecycle repository, a supplier communications platform, and a guided buying platform for preferred vendors. An . The capability assessment map also gives you another way to identify insourcing opportunities. Without a digitized sourcing process, companies may be leaving critical dollars on the table. In working through this process with clients, weve found that three steps can ensure that decisions are made objectively and are based on facts. After considering many options, Keyes concluded that the best way to save the U.S. company was to adopt the Japanese model. In this article, well describe how and why the role of sourcing is changing in the twenty-first-century economy and lay out a practical strategic framework to guide companies through the transition. Decide what to insource. Strategic sourcing platforms enable a one-stop shop to plan, initiate, and complete sourcing events while tracking supplier performance. The issue of physical proximity may not seem very strategic, but globalization and advances in technology ensure that its a constantly moving target. Almost nothing a company does cant be outsourced anymoreeven functions as critical as engineering, marketing, and manufacturing. Evaluate each supplier based on availability, quality, finances, and cooperation level. It's easier to streamline and integrate systems with a single supplier. Suppliers are evaluated for availability risks, quality risks, financial risks, and cooperation level. An example could be an electric vehicle battery manufacturer. Understanding 'why' and 'where' The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment. As companies scale and grapple with new business challenges, enterprises can no longer afford to overlook their sourcing and procurement organizations. Forward thinking: The best strategic sourcing teams base their decisions not only on current business needs, but also anticipate how those needs will evolve as the business scales. For instance, the firm outsources gasoline distribution to Citgo but maintains proprietary control over gas pricing and promotionactivities that could differentiate its stores if done well. Strategic sourcing is an approach to procurement that weighs the overall value delivered through a vendor relationship rather than the simple cost of the product or service provided by a vendor. Learn More About Strategic Sourcing and Procurement. In applying sustainable sourcing, organizations integrate social, ethical, and environmental factors into selecting their suppliers. Its no longer a companys ownership of capabilities that matters but rather its ability to control and make the most of critical capabilities, whether or not they reside on the companys balance sheet. Outsourcing has become strategicyet many executives remain unprepared. If you can gain insights into these areas, you should be able to create better results from this process over time. Similarly key was 7-Elevens decision to rely on an outside vendor, IRI, to maintain and format detailed customer purchasing behavior data while keeping the data themselves proprietary. Teams that utilize a strategic sourcing system can consistently negotiate more favorable payment terms to improve their companys bottom line, and also contribute to operational improvements that boost cash efficiencyfor example, by arranging with a supplier to deliver goods on a just-in-time basis while holding inventory in the suppliers facilities. 7-Elevens stock appreciation over the past five years has outpaced all major competitors, including Caseys General Stores, the Pantry, and Uni-Mart. Why? To win a significant share of their business, chosen suppliers had to meet tough cost and quality specifications. And that, in turn, is changing the way companies think about their organizations, their value chains, and their competitive positions. We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy. Strategic sourcing involves collaboration with both internal stakeholders and suppliers. From office chairs and laptops to software subscriptions and janitorial services, these teams work tirelessly in the background to ensure the business not only functions, but thrives. Ultimately, a companys skill in quickly remolding its sourcing arrangements in response to market conditions and rivals moves may be its strongest competitive advantage. The company has paid similarly close attention to its relationship with Frito-Lay, since snack foods are one of the most important product lines for convenience stores. The answers to such questions may encourage a company to pursue certain sourcing opportunities that might not be highly attractive based on current numbers but could offer dramatic benefits in the coming months and years.