IT Focus Area: Strategy
July 27, 2012
Strategic Sourcing: A Critical Part of a Successful Business Strategy
According to a 2011 survey by the Aberdeen Group, a leading business intelligence research company, strategic sourcing is the number one focus of procurement and sourcing executives worldwide. The Aberdeen Group surveyed more than 150 procurement and sourcing executives, representing more than nine countries and many diverse industries.
What is Strategic Sourcing?
Strategic sourcing is a systematic corporate or institutional process that continuously improves and re-evaluates an organization’s purchasing activities and requirements from its stakeholders. Strategic sourcing is one component of supply chain management. It is critical in helping organizations remove bottlenecks in acquiring what it needs, at the best price, while meeting its terms and conditions.
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To implement a successful strategic sourcing strategy, many companies are looking externally for help from a strategic sourcing partner.
Why Have a Strategic Sourcing Partner?
The technology infrastructure space today is complex and fragmented. There are many vendor technology options within each specific technology infrastructure domain. These vendor technology options are changing at an ever-increasing pace. With the advent of converged architecture, technology acquisition decisions have become more complex. On top of this added complexity, there are business pressures to reduce costs in order to grow net earnings and shareholder value, take on more purchasing volume with less resources, respond quickly to new technology needs from business stakeholders, proactively reduce cycle time for order-to-floor in order to seize opportunities for business stakeholders, and meet global customer demands. For all these reasons, many organizations look externally to partner with strategic sourcing partners to achieve their overall business strategy.
What to Look for in a Strategic Sourcing Partner
The requirements for sourcing processes should first be defined. Identify the price-related and non-price-related requirements for each sourcing process. For example, it is important to include market dynamics, product and service needs, current costs, current and potential suppliers, existing contracts, forecasted demand, and compliance and security requirements.
Overall, a strategic sourcing partner should help you in five ways.
1. Cut costs
It is important to first define which costs can be cut from your organization. Spend visibility is a critical foundation for strategic sourcing and is a good place to start. An organization should fully understand their current suppliers, customers and market. Companies should conduct an analysis of current spending, in order to identify and prioritize the largest opportunities for improvements and cost savings in specific spend categories. For example, a company should consolidate spend across disparate suppliers in order to maximize volume and associated cost savings. Typically, opportunities like optimization of maintenance renewals are also first identified as action items that can be implemented quickly.
2. Improve cycle time
Cycle time is a length of time required to complete one cycle of an operation or process. Most organizations have critical internal and external stakeholder needs that must be fulfilled in a timely manner in order to capitalize on the need. The metrics of focus for procurement teams are quote-to-floor and order-to-floor. These metrics represent the cycle time from the identification of need until the product is delivered to the data center floor. A strategic sourcing partner should work to streamline these cycle times in order to meet or exceed stakeholder needs.
3. Reduce risk
To make sure these operational processes are continually running, it is important to limit risks. These risks may include business continuity and disaster recovery, product availability, compliance achievement, financial viability, service-level agreements, security, and quality and timeliness of shipments.
4. Enhance flexibility
A strategic sourcing partner should be able to improve your organization’s flexibility and agility to meet the changing needs of your customers. How does this partner help you respond to changes made by your business and the changes occurring in the marketplace? Do they intimately understand your business objectives and overall business strategy? This partner should allow you to more quickly source processes or operations. Do they help you eliminate the bottlenecks on acquiring what you need, such as business and technology solutions, at the best price and with your terms and conditions? This strategic sourcing partner should be able to help you quickly turn your business, provide depth and breadth on the wide range of technology domains (network, storage, security, systems, etc.), and help you best retire end-of-life technologies. The best sourcing partners are not limited to a single manufacturer or vendor, but can provide you with the best products and services to fit your needs.
5. Add strategic value
Strategic value is more than just the lowest price. It also takes into consideration product quality, reliability, risk mitigation, and supplier diversification. It also encompasses value-add services, technology enablers and continued innovation in the supply chain.
Architecture interoperability. A strategic sourcing partner should help you figure out how a technology architecture best interoperates. For example, does the partner help you with technology evaluation, technology selection and technical education? Does your partner assist you with management of your hardware and software maintenance contracts, optimize your maintenance spend, and help you assess your assets’ risk, service and support life, in order to take action?
Technology enablers and procurement and logistics. Does the partner help you align suppliers’ websites with your e-procurement systems? Do they provide a self-service portal for ordering, order status, and an asset system data feed? It is important to determine how to best work together when it comes to procurement and logistics such as quoting, order fulfillment and logistics.
Staging deployment. This aspect determines how well a strategic partner can help you with technology burn-ins, configurations, staging and warehousing of technology and management of deployed product shipments to your implementation schedule.
Supply chain optimization. A strategic sourcing partner should provide solution engineering and business process consulting to define standard configurations, streamline your end-to-end procurement process, provide spend reporting, and execute quarterly reviews of supplier performance against defined key performance indicators. They should also assist in evaluating lease financial solutions for your technology needs, and analyze ways to reduce total cost of ownership.
With more and more organizations looking to reduce costs while increasing agility and flexibility, strategic sourcing is proving to be a sound business practice that helps achieve organizational goals through improved process and greater visibility and communication.
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