November 11, 2022 - 7 MIN. READ
Good procurement procedures help building operators and contractors get the materials they need to keep a commercial building or multifamily property running smoothly and efficiently, but great procurement procedures help contractors get those same goods at the lowest possible cost.
But sound procurement practices by themselves aren’t enough. Instead, businesses must adopt strategic sourcing protocols to ensure that negative externalities, such as changes in the supply chain, do not hurt their business in the long run.
Strategic sourcing is the next evolution of procurement. Not only does it reduce the cost of materials, it also helps building owners and managers build strong long-term supplier relations and avoid future disruptions to the supply chain. The end goal is a procurement strategy that builds a mutually beneficial relationship between suppliers and the business’ that count on them, as well as one that can evolve with the changing needs of the company.
The key to strategic sourcing lies within current procurement data and analytics, allowing engaged buyers to unlock even more benefits for their businesses. Using the latest tools and methodologies, implementing strategic sourcing is an easy way to secure a competitive advantage for your business. It is a critical investment in your future that will pay dividends both immediately and in the long term.
The Business Benefits of Strategic Sourcing
Cost Savings
The most obvious benefit is the cost-savings associated with strategic sourcing, which can eliminate rogue-spending, or spending outside of your contracted suppliers. Rogue spending eats away at the bottom line, ultimately increasing tail spend and the overall operating costs of your business. Strategic sourcing can also help a company secure the best pricing and service levels on their most commonly purchased goods through pre-negotiated contracts with suppliers.
That can lead to greater long-term savings. Strategic sourcing manages costs at all levels of your organization to protect your profit margin, without introducing friction into your procurement processes.
Improved Supplier Relations
Strategic sourcing focuses on finding the “best fit” vendors as opposed to building partnerships based solely on the lowest price. This practice determines which supplier is the most reliable, has the quickest response time, and is most in line with the business' goals.
After these suppliers are identified, strategic sourcing managers can focus on building long-term relationships, which increase in value over time. After all, suppliers are more likely to improve service, pricing, and performance if they have a history with a buyer.
Establishing trusted “best fit” vendors is one of the best ways to safeguard your supply chain and reduce procurement uncertainty. Vendors acting in partnership with you become assets that can help you anticipate supply shortages before they become critical.
And as your relationship grows, they can almost become a part of your extended organization.
Fewer Disruptions to Supply Chain
This is an important aspect of strategic procurement, especially given the current state of the world. When you work with a select, chosen set of suppliers — at least in part — with a proven ability to pivot, adapt and evolve, it makes it easier to avoid disruptions to your supply chain. As everyone knows, disruptions in the supply chain can mean important assets, appliances, and equipment aren't being properly maintained or repaired.
That leaves tenants frustrated and less likely to renew their leases. If you’ve built a history with agile suppliers, you’re likely to weather a supply chain storm with greater ease. As the pandemic-related supply chain issues have clearly illustrated, supply chains can be fragile, often with disastrous consequences. Strategic sourcing makes your supply chain more flexible and resilient, even in the most chaotic market environments.
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How to Implement Strategic Sourcing
It all boils down to one word: data.
A close look at your business' data will guide the implementation of strategic sourcing into current procurement processes. Your data is a critical corporate asset that lays the groundwork for strategic sourcing.
Mastery of your data on both micro and macro levels improves decision-making, ensures the best use of resources, and identifies new ways to enhance efficiency and improve your profit margins. Utilizing the latest technology and tools like artificial intelligence (A.I.) and an enterprise procurement platform will make it easier to manage and analyze your data.
Here are seven steps that will help you transform mere procurement into strategic sourcing:
- Start with a big-picture analysis. Look at all purchasing data, then break it down into different departments and locations. Analyze different spending categories, as well as patterns in buying. The more granular the data, the more information you have to analyze. Use advanced reporting and data visualization tools to detect trends, bottlenecks, and potential efficiencies. Feed these data points into analytical tools continuously, and track important trends, such as changes in pricing and availability of the supplies needed to run your business.
- Create a strategic procurement plan based on the business' needs. Create forecasts using historical data about what you’ve purchased, when, and which locations will help guide strategic planning. For instance, if you’ve negotiated a discount on certain printer cartridges, but they’re not being used, you can direct your efforts elsewhere. Ensure your plan is dynamic and shared with the finance group and other relevant stakeholders. Solicit regular input and put procedures in place to ensure the plan is updated in real-time and can be quickly adapted to respond rapidly to changing real-world conditions.
- Analyze the supplier market. What suppliers can provide your business with the Maintenance, Repair, and Operations (MRO) products needed to keep buildings running and in repair? Develop portfolios about potential suppliers, including their strengths and weaknesses. Make supplier research an ongoing process, and institute a practice to gather as much data as possible on prospective new vendors — track qualitative and quantitative measures as part of your analysis.
- Define your supplier criteria. Know what the business needs from suppliers so it's easier to determine who can meet the criteria and who can't. Determine what qualities are most important in your suppliers and engage them accordingly. Seek input internally, so the interests of all interested parties are represented in your criteria. The more input, the better.
- Negotiate with a list of select suppliers. Reach out to a carefully chosen list and start the negotiation process of putting products’ pricing under contract. Analyze each negotiation as a basis for learning the most effective approaches and terms and integrate this feedback into subsequent negotiations.
- Incorporate the new suppliers into your procurement program. Make it easy for contractors and employees to order from the new suppliers. This helps eliminate maverick spending and increased costs. An easy-to-use, one-click procurement platform can decrease employee reluctance to use traditional (aka cumbersome) ways of buying.
- Track the performance of all suppliers. Make sure suppliers are adhering to terms and conditions and providing the optimum level of service. Continually analyze their performance as well. If they aren’t up to par, investigate potential new suppliers who may be better suited to serve the business.
4 Metrics to Consider for Strategic Sourcing
Businesses need to understand what data to look at to create a strategic sourcing process. Here are four pieces of must-have data for strategic sourcing managers and why they matter.
Discover more metrics for optimizing MRO supply chain procurement here.
- SPEND ANALYTICS
This one is crucial. Procurement teams need to know how much is being spent, when, and where. Without the data, procurement is often hit or miss, because it depends on assumptions and biases of the people doing the purchasing and installation of MRO products.
- PRODUCT QUALITY
How long are products likely to last? While some suppliers may offer lower prices, if the quality of their product isn't as good, a business will end up spending much more on it in the long run. The quality impacts the total cost of ownership, and this is an important metric in strategic sourcing. Data on product quality and longevity is vital.
- PROCUREMENT AVERAGE CYCLE TIME
How long is it taking for products to get to the business from the time an order is placed? Delays from suppliers may inconvenience a building owner or manager, but it could also end up becoming a health and safety issue. Track supply rates and on-time delivery statistics, especially when evaluating whether to re-up on contracts. You can read more about why this metric matters here.
- SUPPLIER RELIABILITY
This metric is extremely important because it measures how well suppliers are fulfilling the terms and conditions of the contract. Are deliveries timely? Was the right quantity delivered? Did the right items go to the correct location? If the answer to any of these questions is regularly a “no,” you’ll need to enforce terms and conditions and possibly look elsewhere in the future.
Conclusion
As you can see, strategic sourcing is fueled by data. If you don’t have access to granular purchasing data already, a digital procurement platform can help by providing you with the information you need to make your business stronger.
For example, when you become a member of Raiven Marketplace, you receive access to Avendra’s best-in-class contracts for MRO supplies. That collective buying power means you’ll receive greater savings from some of your everyday suppliers as well as free shipping from most suppliers.
And while data is key to adopting strategic sourcing in your organization, you should also complete the seven steps and track the four key metrics above to ensure compliance with best practices. By following this methodology and implementing an advanced procurement platform, your company can effectively reduce costs, improve supplier relations, and optimize your supply chain.
Raiven can help
With considerations like these in mind, the team at Raiven has created a robust online platform that aims to reduce the damage of these supply chain inefficiencies.
Raiven members receive heavily discounted pricing on equipment, parts, and maintenance supplies as well as a purchasing platform that makes buying fast and efficient. Key benefits include:
- Pre-negotiated discounts of 7-25%+ from industry-leading suppliers like Carrier, Ferguson, Grainger, Graybar, Koch Filter, and more.
- Supply chain alerts for price and product availability changes on the supplies that matter most to you.
- A private marketplace houses all your preferred suppliers in one location for easy access to your discounts. No more bouncing around websites comparing prices.
- A.I.-powered purchasing tools that find the lowest prices even when employees shop outside your preferred suppliers.
Raiven is your one stop to save time and money. Visit Raiven to learn what we can do for you.
Article Sources:
https://www.michiganstateuniversityonline.com/resources/supply-chain/why-companies-should-consider-strategic-sourcing/
https://blog.workday.com/en-us/2022/understanding-basics-what-strategic-sourcing.html
https://hbr.org/2022/10/dont-abandon-your-just-in-time-supply-chain-revamp-it
https://www.techtarget.com/searcherp/definition/strategic-sourcing
https://aims.education/study-online/supply-chain-strategy/
https://www.finextra.com/blogposting/22988/the-inevitability-of-risk-why-spend-management-is-key-for-business-in-unpredictable-times
https://www.insurancebusinessmag.com/us/risk-management/operational/working-towards-more-ethical-and-resilient-supply-chains-424723.aspx
