Procurement leaders have a multifaceted job ahead of them. CPOs often struggle to gain the needed buy in from stakeholders, making it difficult for them to truly provide the value they are capable of. So often, finance and other C-Suite leaders focus myopically on cost reduction. While this is a key concern, it is not the only one. That’s where strategic sourcing comes into play.
Tactical sourcing vs. strategic sourcing
From a procurement standpoint, tactical sourcing is the short game. Tactical sourcing involves a routine approach where purchasing activities are often reactive and composed of transactional activity, an approach that is frequently adopted by less mature companies. Additionally, tactical sourcing typically comprises immediate buying to ensure that organizations have what they need to meet specific needs, but it doesn’t account for a deep understanding of vendor capabilities or larger company goals.
Conversely, strategic sourcing is often viewed as the long game. This is a long-term, comprehensive approach to purchasing that accounts for current and future needs of the business. Strategic sourcing goes deeper than individual purchasing activities and accounts for enterprise goals and considerations. This involves evaluating vendor capabilities, gaining a deeper understanding of your supplier pipeline, working toward process improvement to deliver higher quality and lower cost, and optimizing purchasing activities for efficiency.
A digital solution is often required to truly engage in strategic sourcing so that you can gain a holistic view of your company’s ecosystem. In fact, according to a Hackett study, digital transformation initiatives are expected to grow by 11% in 2021, highlighting the need for an efficient digital solution to support procurement.
But, how do you get from tactical to strategic sourcing? Building a roadmap for the transition is truly the difficult part as the business must still maintain continuous operations and strive for excellence in savings, P2P integrity, and other critical areas. Strategic sourcing is a road that many procurement practitioners know they need to travel, but with little understanding of how to get from start to finish. Given a thoughtful approach, it is possible to execute strategic sourcing alongside your current practices. While the journey may not always look the same, one thing is for sure—it’s a road paved with data.
The journey from tactical to strategic sourcing can be a long and arduous one. It is frequently understood that the best approach to sourcing is usually a strategic one to account for all business needs. But how do you go from focusing on immediate needs to surveying long-term plans and outlining your processes to match those business goals? It’s a road that many procurement practitioners know they need to travel, but with little understanding of how to get from start to the finish.
Data as the Foundation for Strategic Procurement
The roadmap to strategic sourcing involves many elements, but at the core of a successful approach lies data. Data provides the foundation upon which you draw your conclusions and develop an approach that fits your business needs. Why is data so important in procurement?
- Credibility: Modern procurement professionals frequently struggle with gaining organizational trust. In fact, the Hackett study listed stakeholder resistance to change as they top hurdle for procurement transformation. With data to support your processes and workflows, it becomes easier to garner that needed stakeholder buy in. With firm data to show your success, you also have a basis for establishing ROI and developing a value statement.
- Transparency: Visibility is vital to the success of a strategic sourcing initiative. In DeLoitte’s 2020 Chief Procurement Officer Flash Survey, 90% of participants cited visibility into extended supplier networks as moderate to very low. Transparency allows for deeper insight into the supplier pipeline, enables necessary compliance and governance, and allows for finance to monitor key procurement projects. Adopting a procurement SaaS tool that enables proactive transparency and real-time collaboration can help to support your goals.
- Validation: Data provides the hard numbers that you need to demonstrate what you are bringing to the table, including facts about savings, value creation, KPIs, and other critical metrics.
Best Practices for Procurement Data
As the foundational element of your strategic sourcing roadmap, your data must not just be present, it needs to be clean and accessible. Without it, you will be unable to communicate your value or build trusted relationships with your company.
Here are some best practices for your procurement data:
Make sure your data is valid. Data needs to speak for you. If it’s strong enough and valid, you work will nearly be done. Think of a P&L Sheet and how these numbers speak volumes all on their own.
Enable transparency into your data. Your organization will begin to gain trust in procurement if they have consistent transparency into project progress, savings and other value creation tasks.
Determine a consistent reporting structure. If you want to monitor progress, you need a baseline. To this end, make sure you develop a reporting structure that is easily understood by key stakeholders and that allows for progressive comparison.
Select a comprehensive digital tool for tracking procurement. An effective procurement software solution will measure the performance of procurement, provide the needed visibility, and allow for simple reporting of progress. According to DeLoitte, 2020 made the need for digitization more apparent. “Approximately 18% of respondents regretted not accelerating digitization fast enough through investments in upgraded systems that enhance visibility and analytics capabilities.”
If you can achieve these things then you are already advancing along the maturity curve and are set on the path to a high-functioning procurement team.
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