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Jul 05

Competitive Sourcing in Procurement

By Procurement No Comments

Effective sourcing in procurement is no longer a luxury—it’s a necessity.

For finance and procurement executives, understanding the intricacies of sourcing is crucial in ensuring a stable supply chain, mitigating risks, and ultimately achieving a competitive edge.

But what exactly is sourcing in procurement, and how does it unlock value for businesses?

Understanding Sourcing in Procurement

Sourcing is the process of finding the most suitable suppliers of goods and services for a company. It’s about balancing cost, profit margins, and competitiveness. The right supplier must offer a good enough price so that the acquiring business can make a profit margin by trading or using the product in their production process, all while considering the actions of competitors.

Although often used interchangeably, sourcing and procurement are distinct but related concepts. Sourcing involves finding, vetting, and onboarding suppliers, whereas procurement deals with the steady flow of goods through the supply chain.

The Importance of a Sourcing Strategy

In order to attain a stable supply chain, it’s important to develop a proper sourcing strategy. A sourcing strategy serves several purposes:

  1. Consolidating purchasing power: A strategic approach to sourcing allows a business to negotiate for lower unit prices through bulk purchases. This can result in higher profit margins or lower selling prices, thereby increasing the competitiveness of a company’s products.
  2. Risk mitigation: By conducting research on prospective suppliers, a company can avoid suppliers who are not a strategic fit, perhaps in terms of capacity, culture, or regulatory compliance. This can protect the company from possible disruptions arising from a supplier’s non-performance.
  3. Scouring the market for opportunities: Strategic sourcing is an ongoing process of searching the market for new opportunities. New suppliers with superior product quality, more competitive prices, or even new production technology may emerge. The role of the sourcing team is to establish contact, gather intelligence, and lay the groundwork for future contracts, helping the business stay competitive in the long term.

The Sourcing Process: A Step-by-Step Guide

The sourcing process can be broken down into seven key steps:

  1. Analysis of Internal Needs: This involves determining the goods and services the company needs to acquire, as well as how much of each item is required based on past requirements and activity growth projections.
  2. Researching the Market: The organization should research the market to find potential suppliers and their offerings. This includes considering logistical costs and the risks that arise from working with each of them.
  3. Developing the Sourcing Strategy: The company comes up with a method of determining which supplier to work with, ensuring both reasonable costs and supply chain stability.
  4. Requests for Proposals and Quotes: Once potential suppliers have been identified, the company will invite them to send in their bids to supply goods or deliver a service. These proposals need to be detailed enough for the sourcing team to assess the supplier’s capacity to deliver.
  5. Negotiating Contracts: After receiving proposals, the company will shortlist suppliers they want to work with based on an objective criterion. This often involves negotiations for adjustment of certain terms.
  6. Onboarding and Integration of the Suppliers: Once a contract is signed, the supplier undergoes a formal onboarding process, which involves setting up communication lines.
  7. Assessment of Results: Sourcing is an ongoing process, and for current suppliers, the company has to monitor their performance against predetermined standards continually. This is a critical part of supplier relationship management.

Sourcing Strategies to Consider

There are several types of sourcing strategies, including near-sourcing, insourcing, global sourcing, sub-contracting, captive service operations, manufacturing, vertical integration, and joint ventures. Each comes with its own set of benefits and challenges.

For instance, near-sourcing can save on cost and time in transportation but may require a higher initial investment. Conversely, offshoring can offer cost savings but often incurs additional time and costs in transportation.

The Power of Technology in Sourcing

The use of technology can help streamline sourcing activities. From gathering information about suppliers and sending requests for proposals to performance benchmarking and assessment, digital tools have revolutionized the sourcing and procurement process.

According to a Gartner survey, 85% of businesses have already implemented, or plan to implement, digital procurement solutions in the next two years.

 

With a proper understanding of sourcing in procurement and the use of strategic sourcing practices, finance and procurement executives can unlock significant value for their organizations.

By adopting efficient sourcing strategies and leveraging the power of technology, businesses can streamline their procurement processes, reduce costs, increase competitiveness, and ultimately drive growth.

 

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Jun 09
Premikati Procurement Software

Picking the Right Technology Partner

By Procurement No Comments

Not all technology partners are created equal. The best run companies attract and retain top-notch talent and the on-staff management team knows how to see a project through to success. Lesser companies simply want to cash checks.

By following the eight considerations when selecting a partner below, however, you’ll greatly increase your chances of finding a high-quality technology partner that can deliver.

1. What needs to be done?

First, make sure you understand your project. Many companies and executives have a vague idea of what they are looking for. However, you want more certainty when writing an RFP and reviewing potential partners. Breakdown as many details, features, and functionalities as possible. Consider the user journey, integrations, and future needs as well. Make sure you include all of the above in your RFP. Loop in your on-staff technology and software experts to source their feedback.

2. Put forward a clear and comprehensive RFP

For many companies, the journey to finding an excellent technology partner starts with the Request-for-Proposal (RFP). This document outlines what you need and who you are as a company. You want to provide enough details to give companies a clear sense of the project and scope without bogging potential partners down with unnecessary or redundant information.

3. Price is just one factor

Price is an important consideration but one of many. Make sure you examine other aspects and ensure that no matter the price you pay, you’re getting a good value. Also, make sure you know the “true cost.” Some vendors quote a given price but end up going well over budget, and you may have to pick up the tab. Others tack on costs, like implementation and support. Understand the total costs of the project before signing anything.

4. Deadlines and timelines

Ask the business for a reasonable estimate of the timeline. Don’t simply take their word for it, however, and also ask about projects in similar scope and how long they took to complete it. Further, inquire about projects that went over initial timelines and what happened. What caused the delays and how did they resolve it? Remember, however, quality is often more important than speed. A hasty project may result in poor software that you have to grapple with for years.

5. Ensure that potential vendors are transparent

You want to work with vendors who are honest about their resources, time management, and capacities. Additionally, ask for a clear roadmap with deliverables and goals that the partner feels is reasonable. On your end, the roadmap should be clear and easy to decipher.

6. Review customer testimonies

Great partners can usually offer a lot of testimonies. Past clients, employers, and partners can vouch for their skill and success. Ask for a portfolio and a list of past clients you can contact. When you contact clients, dig deep and inquire about short-comings, hiccups, and more.

7. Check for a warranty or guarantee

Great companies often stand behind their products as a point of pride. It’s a good sign if a company offers extensive warranties, guarantees, or other assurances. On the other hand, if a company offers no guarantee, be wary.

8. Look for social good

This is about converging profit and purpose. At Premikati, we believe every business should be engaged in creating social value. Do we believe we can accomplish both our business goals while empowering society’s goals? The answer is yes, and this is one of the reasons why we partner with SAP.

Invariably, every industry must decide whether to put values over profit. As a female-owned business, Premikati wants to add values and ideals to every choice we make to ensure socially responsible decisions. As the saying goes, “Birds of a feather, flock together.” SAP continues to make a commitment in service of local and global communities. SAP believes every individual brings a unique set of skills, talents, and experiences to induce a truly dynamic workforce. In fact, they have pioneered the effort to promote neurodiversity in the workplace by starting their Autism in the Workplace program in 2013. This program has had major success in hiring employees on the autism spectrum, with a 90% retention rate, to help ensure a much more inclusive workplace for all.

Moreover, SAP supports communities in many ways by contributing to a wide variety of organizations, by supporting employee volunteerism throughout the year, and by partnering with non-governmental organizations (NGOs). For instance, SAP offers a “Dollars for Doers” program with matching gift grants, dollar for dollar, for active employee volunteers to the organization of their choice.

Take-Away: Diligent effort now can prevent future mistakes

There’s no way to guarantee that you’ll find the perfect technology partner. Still, by considering all of the above, you can greatly increase your chances of success. Choosing the right partner is a vital step to ensuring a good project outcome, so take your time, examine things closely, and find the partner who aligns with your values and objectives.

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