case study on strategic sourcing

• Partnership Approach
• Business Credentials

Project Ignite – Strategic Sourcing Case Study

In this issue 18 February 2020:

Introduction.

In my last blog Procurement Capability and Maturity Model dated 30 January 2020, one of the improvements focussed on was the introduction of strategic sourcing. The practical approach adopted is discussed below.

Project Objectives

• Identify sourcing opportunities and build category plans.
• Identify sourcing opportunities and sourcing approaches to effectively deliver sourcing benefits.
• Establish the sourcing governance for effective procurement decision making.
• Obtain approval from the relevant governance committees to move into the sourcing phase of this project.

Determine Market Competition

• Barriers to entry include high capital outlays and high operating costs, the market remains very competitive in the battle for market share

External Market Forces

The company should focus on identifying suppliers with good local content credentials. Appointed vendors must however be compliant with legislation and should be able to meet environmental requirements.

• Although there is a trend away from cash, most countries on the continent are still very cash dependent. Suppliers are shifting their focus from risks to managing costs in a better way. Technology plays a key role in reducing costs and will be critical from reducing the dependence on humans as well through the advent of ATM’s, note sorters and Cash in Transit companies
• The countries should focus on identifying suppliers with good local content credentials. Appointed vendors must however be compliant with legislation and should be able to meet environmental requirements

Category and Supplier Positioning

Suppliers are not aligned to how the company views the commodity. The company must align the profile of this commodity with suppliers and treat them as strategic if they wish to negotiate better deals, service improvements and get sustained value from vendors.

Sourcing Maturity

The commodity is relatively immature in the selected countries. By adopting procurement best practices and focusing on closing the gaps ROA will benefit financially and operationally from improved vendor relationships.

Sourcing Opportunities – levers

Workshops held with the team identified and prioritised spend consolidation, best cost evaluation, specification improvement and total cost management the primary sourcing levers to focus on in the initial phases.

What this means in practise is that procurement focussed on negotiating and implementing the following…….

Suggested Sourcing Approach

• Option A : Sourcing is done centrally by ROA team
• Option B : Sourcing is facilitated by ROA team in conjunction with the in-Country teams
• Option C : Sourcing is done by the in-country teams

Pros and cons for the 3 possible options

High level sourcing strategy.

Based on the introduction of category management and other strategic sourcing principles the savings improved as follows:

Year 1: R7m Year 2: R61m Introduction of strategic sourcing with emphasis on category management happened after year 2. This included improved demand planning, market analysis and benchmarking, improvement in the sourcing approach based on a 3-pronged approach (group, regional, in-country), contracting and the introduction of supplier performance and relationship management.

Year 3: R 169.3m Year 4: R 205. 0m

[email protected] | [email protected] |  www.tkjprocurement.com

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Strategic Sourcing Case Studies

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Procurement Process

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• Harvard Business School →
• Faculty & Research →
• March 2019 (Revised June 2019)
• HBS Case Collection

Global Sourcing at Nike

• Format: Print
• | Language: English
• | Pages: 31

About The Authors

Nien-he Hsieh

Michael W. Toffel

Related work.

• June 2019 (Revised January 2023)
• Faculty Research
• Global Sourcing at Nike  By: Nien-he Hsieh, Michael W. Toffel and Olivia Hull
• Global Sourcing at Nike  By: Nien-hê Hsieh, Michael W. Toffel and Olivia Hull

How a Global CPG Leader Optimized $500M of Direct Materials Spend and Exceeded Savings Goal With GEP

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Strategic Sourcing: A Big-Picture Approach to Procurement

July 30, 2021

by Dave Hulsen

In this post

What is strategic sourcing, why is strategic sourcing gaining prominence in procurement.

• Benefits of strategic sourcing
• When is strategic sourcing a good option?

Who is involved in the strategic sourcing process?

How to shift to strategic sourcing, tools for strategic sourcing.

As businesses increasingly focus on managing costs, finding the right vendors has become a top priority for procurement teams. 

Consequently, the practice of strategic sourcing, which focuses on maximizing value and reducing risk through vendor partnerships, is transforming the way businesses view buyer-supplier relationships.

Spending wisely can make or break your business. Admittedly, this idea isn’t new. Indeed, for finance and procurement teams, it’s an age-old, foundational principle. However, what is new is how they decide what wise spending looks like. As businesses increasingly seek to control costs while maximizing output, the procurement department is faced with the question of how to deliver results. For many, the answer is strategic sourcing.

Strategic sourcing is a growing practice that embraces spend analysis, data-driven supplier selection and ongoing engagement with vendor partners. 

This guide will explore strategic sourcing in detail. To start, learn the definition of strategic sourcing as well as key principles and benefits of the practice. Then, explore scenarios that are ideal for strategic sourcing as well as who is involved in the process. Next, you’ll see a detailed plan for implementing strategic sourcing. Finally, the article will share how technology enables strategic sourcing to deliver even more value.

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. The practice is a part of supply chain management and emphasizes customized solutions and strategic partnerships.

Furthermore, this big-picture perspective acknowledges and accounts for the many complex factors that influence value. Indeed, strategic sourcing is often viewed as a cycle that includes spend analysis, supplier selection and ongoing engagement.

In addition, an emphasis on building meaningful buyer-vendor partnerships promotes collaboration, accountability and innovation throughout the vendor lifecycle. Ultimately, this approach achieves the overall goal of strategic sourcing – to reduce costs while improving the efficiency and reliability of the supply chain.

Traditional procurement vs. strategic sourcing

Procurement has always been focused on controlling costs and improving company profitability. However, the way that organizations identify and connect with suppliers and vendors has changed significantly in the last several decades.

Historically, vendor selection has largely been based on locality and peer referrals. As technology emerged, organizations gained access to a vast and competitive global network of suppliers. 

Now, with visibility to a full range of suppliers, procurement teams focus on controlling procurement costs by finding the vendor offering the lowest price as quickly as possible. This tactical, traditional approach is widely practiced. However, a bad experience with the wrong vendor quickly teaches that the fastest, cheapest solution isn’t always the best fit. Consequently, strategic sourcing recognizes and accounts for factors outside of cost. 

Strategic sourcing principles

• Decisions based on big-picture value 
• Partnerships preferred over transactional interactions
• Considers total cost of ownership
• Prioritizes the most important elements of a vendor’s offer
• Highlights the value of the procurement department

Strategic sourcing vendor considerations

Taking a holistic approach that weighs all aspects of the vendor relationship, the strategic sourcing process digs into anything that influences value. The subsequent vendor evaluation process then identifies which of these many considerations are most important.

• Quality of goods and services
• Brand reputation
• Financial stability
• Customizability of solution
• Technology adoption
• Customer satisfaction and support
• Vendor innovation
• Subcontracting and outsourcing
• Reliability and responsiveness
• Scalability and growth opportunities
• Seasonality and stability
• Company culture and values
• Sustainability and diversity

The concept of strategic sourcing isn’t exactly new. In fact, it started sometime in the late 1980s or early 1990s. Initially adopted by large companies to quantify and increase vendor return on investment (ROI), today, the practice is widespread among organizations of all sizes. 

Regardless of size, businesses now have the ability to collect and evaluate extensive data between competitors. Indeed, while much of the value of strategic sourcing is derived from it’s in-depth approach, the multitude of factors also make it difficult to attribute procurement savings directly to a single factor. However, organizations that practice strategic sourcing report a number of benefits.

Benefits of strategic sourcing 

Let’s discuss a few benefits of strategic sourcing and how they’re used today.

Cost savings

Reducing costs is always a top priority for procurement teams. In fact, a recent Deloitte survey reports that reducing costs is a top priority for 76 percent of chief procurement officers (CPOs). Accordingly, cost savings is easily the biggest benefit of strategic sourcing.

The entire process centers around the goal of reducing spend. Starting with the first step of the strategic sourcing cycle, procurement professionals identify current costs overdue for optimization. Then, they gather data, explore stakeholder needs, research the current market and eventually issue a detailed request for proposal (RFP) to evaluate and select the ideal vendor.

Because the selection process is more detailed than a traditional procurement project, both parties are invested in building a mutually beneficial and long-term partnership. As such, the relationship is ongoing and collaborative, ultimately resulting in reduced costs. 

Reduced risk

At its core, strategic sourcing is just as much about avoiding a bad partnership as it is about finding a good vendor. Again, thanks to the detailed process you can consider every factor, dig into the vendor’s experience, explore their contingency plans and set a framework for ongoing communication. The Deloitte CPO survey indicates that 75 percent of CPOs identify improved vendor information sharing as their top risk-management strategy. Luckily, collaboration is a foundational component of strategic sourcing.

Enhanced innovation

With the unique focus on partnership, strategic sourcing gives you the opportunity to provide your vendors with regular feedback. Likewise, they have a platform to proactively alert you to trends, keep you competitive and collaborate on innovative initiatives.

Longer relationship, fewer RFPs

It won’t surprise you to know that neither your procurement department nor the vendor’s proposal team relish the prospect of opening up a new RFP. For complex, high-value sourcing projects, the process could last months or even years. By leveraging strategic sourcing, you can rest assured that you’ve accounted for every important factor, selected the right partner and you’re both ready to meet your goals together. 

When is strategic sourcing a good option? 

While there are undoubtedly benefits to strategic sourcing, it’s not a fit for every procurement project. After all, it is an admittedly complicated, and occasionally time-consuming, process. Some projects just don’t require that level of detail. So, it’s important to always find a balance between the value of the item being procured and the time investment required to undertake a strategic sourcing project.

Strategic sourcing is a good fit for projects that are: 

• High value, well defined and essential to the organization
• Complex and highly specialized
• High stakes and part of an organizational change initiative

Examples of strategic sourcing scenarios: 

• Selection of a new customer relationship management software
• Evaluation of financial services or employee benefits
• Engaging an architecture firm for a new construction project

Scenarios that are better suited to alternative procurement approaches

The detail and time required for strategic sourcing means there are some situations that simply won’t be a good fit for the process. Here are a few examples.

• Low value, low risk procurement like finding a project management solution for a single department
• Collecting bids to meet policy requirements when there is an existing strong preference for a particular vendor
• A routine, transactional purchase of office supplies – try an RFP lite
• Gathering ideas, pricing and planning a potential purchase – consider a request for information (RFI)
• Finding the best expert to consult on a marketing initiative – try a request for qualifications (RFQ)
• Securing the lowest price for a low-complexity purchase — Consider a request for quotation (RFQ)

Within your organization, a number of people and departments will play a role in your strategic sourcing efforts. Typically, the process is owned and managed by the procurement department. Indeed, many organizations have recently created strategic sourcing manager roles to encourage specialization in this area.  

As with most procurement projects, a number of other stakeholders will inevitably participate. For example, for a CRM procurement project, stakeholders from sales, marketing and operations would contribute to the project. In addition, legal, finance and IT are also often involved. Finally, almost every strategic sourcing project will require executive review and approval. 

Adopting strategic sourcing happens one procurement project at a time. Initially, it may feel like a big change, but parts of the process will feel familiar. Indeed, strategic sourcing shares a number of common principles with traditional procurement. As you identify purchases or existing vendor relationships that are a good fit for the approach, you’ll move through the strategic sourcing cycle, starting with spend analysis, then supplier selection and, finally, ongoing engagement.

Spend analysis

Whether you’re evaluating an existing vendor relationship or undertaking a brand new procurement project, you’ll start with research and analysis. The goal of this step is to define your current state, establish needs and goals, and research solutions.

Define your current state

Often, procurement projects start with a need. Either a new problem has emerged or a current process just isn’t working as expected. Regardless of the circumstances, clearly defining your current circumstances sets the foundation for everything that comes next. 

As you engage with stakeholders, ask: What is the existing process or strategy? Who are the stakeholders and decision makers? What gaps or roadblocks exist? Are there internal or external factors influencing the current state? Who will have final approval?

Establish needs and goals

Before you buy, you have to know what you need. Furthermore, you also must understand what you’re trying to achieve. So, gather current contracts, talk to stakeholders and brainstorm a list of solution features as well as goals for the purchase. Try to get the perspective of a range of people involved in the current process at various stages. Once you have your list, it’s time to categorize your considerations.

Making smart purchasing decisions requires a clear understanding of which features and factors are must-haves, which are nice to have and those that are out of scope. Review your list of requirements and label each accordingly to create your scope. Each of your must-have elements should tie directly to the stated goal of the project.

Research solutions

With your clearly defined needs and goals in mind, it’s time to explore potential solutions. The business landscape is constantly changing, so staying abreast of new developments requires some research. Explore online resources, gather supply market analysis reports, check customer reviews and tap into your network for recommendations. Ideally, this step will give you a framework as you determine next steps.

Strategic sourcing considers the return on investment at every step. Consequently, you must now weigh the potential benefits of engaging with a new vendor against the time and cost required to move forward. 

Ask yourself: do the potential vendors offer a cost savings that offsets the investment required to find a new solution? Can you invest time in an existing vendor relationship to avoid undertaking a new strategic sourcing project? Do you have benchmark data to validate future ROI? Which vendors are most likely to meet your immediate needs as well as empower future growth?

Supplier selection

If you decide to move forward to engage with a new vendor, you’ll now focus on finding the right partnership. On the other hand, if your research and analysis indicates that the best course of action is to focus on improving your current vendor relationship, you’ll skip this step and move forward to ongoing engagement. 

Supplier selection is where strategic sourcing significantly diverges from traditional procurement. Indeed, you’ll find that creating a strategic sourcing RFP is more detailed and complex than routine RFPs. Likewise, the proposal evaluation process is more involved.

Writing your RFP

When it comes to strategic sourcing, your standard RFP template offers a good start, but updates are required. Indeed, by definition, a strategic sourcing RFP should be thorough and highly specific when it comes to the background information it provides as well as the questions it asks. Remember, comprehensive RFPs are more likely to yield thoughtful, relevant proposals.

RFP background and information

Strategic sourcing projects are often complex and require a customized solution. So, before you ask a single question, it’s important to provide as much information as possible about your company’s background, needs and goals. This enables potential vendors to fully understand your business and tailor their proposed solution to meet your unique requirements.

Information to include in your strategic sourcing RFP:

• Company information: History, about us, mission, vision, industry position and glossary
• Project information: Background information, problem/need statement, current state summary, project contact and key stakeholders
• Solution scope: Minimum vendor qualifications, project deliverables, vendor evaluation process details and proposed implementation timeline
• Submission information: RFP timeline and milestones including proposal due date, evaluation criteria and proposal submission instructions

RFP questions

After you’ve provided key company background and project information, it’s time to ask the questions that will provide you with crucial decision-making data. 

Standard RFP questions

Your RFP should ask a combination of straightforward questions as well as more in-depth, nuanced questions. Luckily, your RFP template provides a foundation to build upon. For example, your template likely already includes these standard sections: 

• General company information
• Product and service descriptions
• Business philosophy and approach
• Competitive differentiators
• Customer references and case studies
• Cost model and proposed pricing
• Customer success policies 
• Data security information

Strategic sourcing RFP questions

Beyond the standard questions, strategic sourcing RFPs also address more in-depth topics. Naturally, the specific questions you’ll ask in your RFP depend on your project priorities and goals. However, here is a selection of sample strategic sourcing sections and questions to consider.

Customer landscape and competency 

• Does the company already work with your competitors?
• Can you talk directly with a customer that has a similar use case to you?
• Ask what challenges commonly face customers like you and how the vendor participates in collaborative problem solving?
• Is the company publicly or privately owned? If private, who are the current investors?
• Are earnings, assets or profit and loss statements available for review?
• Has the company been involved in a merger, acquisition or reorganization in the last few years?

Supply chain stability and infrastructure

• Who are the vendor’s primary suppliers? Subcontractors? Consultants?
• Can the company’s production accommodate an increase in volume or change in scope?
• How robust is their supply chain and how have they overcome supply chain challenges in the past? 

Communication policies

• What technology do you use to communicate with customers?
• When is customer support available and how can they be contacted?
• What is the average response time to customer questions?

Implementation and time to value

• Describe your standard customer onboarding process.
• How long does onboarding take and what is the current timeframe for implementation if you are selected?
• What resources or preparations are required from your organization to ensure on-time implementation?

Ethics and social responsibility

• Request a copy of the company’s corporate and employee policies.
• What are the company’s sustainability policies?
• Does the organization support social responsibility and charitable giving?

Proposal evaluation

RFPs are a useful data collection tool. However, as a procurement professional, you must be able to use that data to find the best vendor. With hundreds of data points per proposal, simply viewing the information side-by-side won’t make the best choice obvious. Fortunately, team proposal evaluation and weighted scoring offer a way to summarize the results of any procurement project.

Team proposal evaluation

Once you’ve received your RFP responses, it’s time to score your proposals. Start by verifying that each proposal meets your minimum requirements. Then, score any closed-ended questions. Finally, it’s time to engage your stakeholders again to help score the more nuanced responses.

A strategic sourcing proposal covers a lot of detailed and technical topics. So rather than having a single procurement professional score the proposals, split the scoring into several groups. For instance, the legal team should score responses to questions that deal with terms and conditions. Likewise, your IT team is best equipped to score RFP responses about software integrations and capabilities. 

As you engage with individual and team proposal reviewers, provide a scoring guide to ensure everyone is on the same page. Indeed, you’ll find your initial spend analysis documents helpful as you create a scoring rubric.  

Weighted scoring

While strategic sourcing considers a vast number of factors, not each of those factors have the same importance to the business. For example, the vendor’s history of on-time delivery is likely far more important to you than their fax number. To properly account for these different priorities, many strategic sourcing teams leverage weighted scoring.

Weighted scoring assigns each question a point value based on its importance to the business, often a scale from one to five. Then, it weighs the score based on its value to the business. For example, several questions in the capabilities section may each be worth five points while a question about must-have functionality is worth 20 points. Then, the capabilities section as a whole is worth 40 percent of the entire proposal. 

To get the final weighted score, multiply the point total for each section by weight percentage and then add the section scores together to get a total score for each vendor. Admittedly, it sounds complicated. However, when you break it down, a simple weighted scoring calculation may look something like this:

Certainly, it’s the best practice to ensure as much objectivity as possible by assigning an individual score for each question. However, some businesses prefer to score and weight each section collectively to save time. As with most procurement practices, your approach will vary based on the needs of the project. 

Final vendor selection

Once you’ve scored your proposals, made your comparisons and called customer references, hopefully you have a clear winner. If not, consider narrowing your vendors to a short list and requesting live RFP presentations or issuing a supplementary RFP.

When you identify the best vendor fit, begin negotiations and contracting. During this step, it’s important to define and put in writing your expectations, strategy for meeting goals and metrics for evaluating performance. Indeed, make sure your team and the vendor are on the same page when it comes to timelines, deliverables and quality control. Proactively establishing this framework will make the next step in the strategic sourcing cycle significantly easier.

Ongoing evaluation

When it comes to maximizing the value of your vendor relationships, continual communication is key. Far too often in traditional procurement approaches, the relationship falls into maintenance mode after the contract is signed. Your vendor goes quiet and the partnership has a ‘no news is good news’ approach.

Unfortunately, this greatly limits the value that the vendor partnership can provide your organization. Luckily, strategic sourcing leverages ongoing evaluation through regular performance reviews, continual communication and market research.

Regular performance reviews

Using the metrics established during negotiations and contracting, establish regular check-ins with your vendor contact. Generally, setting quarterly reviews provides enough oversight to proactively address problems while delivering sufficient feedback for continual improvement. Before these reviews, gather feedback from the individual departments and users that regularly interact with the vendor, so you get a complete picture of how the engagement is going.

Ask what is working well in the partnership? Is the vendor delivering the products and services as expected? How can the process become more efficient? Where is there room for improvement?

Vendor evaluation factors

• Quality control metrics for products and services
• Consistent and timely delivery
• Customer support and responsiveness
• Quantity and cost invoice accuracy
• Expected and actual return on investment

If you encounter challenges outside of the regular review period, reach out to your vendor. Don’t just assume that the vendor is aware of and apathetic to the problem. An article from business.org summarizes saying: 

“Even the most reliable supplier can occasionally slip up. Make sure they have a direct contact point at your company and conduct regular performance reviews. This will help you keep tabs on their work and make sure they’re fulfilling their end of the agreement. These reviews will also help you when it comes time to talk about contract renewal, so you know where you stand.”

Continual communication 

Your partnership should be a two-way street that provides feedback to your vendor and encourages them to do the same. Ideally, transparent communication enables your vendors to become a trusted part of your network.

Ongoing collaboration between your company and your vendors encourages efficiency, identifies roadblocks and fuels creativity. Unfortunately, vendor communication doesn’t always happen spontaneously, it must be planned for and encouraged.

An article from Entrepreneur puts it like this:

“Not every customer wants to buddy up to suppliers, so the fact that your suppliers aren’t offering to work closely with you to improve quality, reduce defects and cut costs doesn’t necessarily mean they don’t want to. They may be under the impression that you are the reluctant one. So, if you want a tighter working relationship with suppliers, let them know.”

Each vendor in your supply chain has a unique perspective and valuable set of experiences. Indeed, staying in sync with your providers will help you identify trends, anticipate market changes and collaborate to find creative ways to improve efficiency.

Market research

It’s no secret that the business landscape is continually changing and evolving. Accordingly, you must watch for potential shifts in customer demand that may impact your needs. Even when you have a positive relationship with a current vendor, it’s important to stay up to date with what their competitors can offer. 

Fortunately, creating and maintaining vendor profiles enables you to catalog key information and updates from potential suppliers. Staying abreast of the latest developments enables you to have a backup plan if your vendor fails to meet your needs. In addition, because these profiles contain background information and differentiators, they can help speed up shortlist selection in the event that a new RFP must be issued.

For organizations prioritizing procurement savings, strategic sourcing software is a must. Designed to centralize and automate strategic sourcing, these platforms are typically cloud-based and collaborative, enhancing efficiency and effectiveness in strategic sourcing.

Strategic sourcing software may include features like: 

• Project management
• Savings tracking 
• Digital RFP issuing and evaluation
• RFP template library
• Data collection and analysis
• Internal and external collaboration
• Vendor relationship management
• Category management
• Supplier marketplace

Make strategic sourcing work for you

Ultimately, strategic sourcing is the process of collecting data, partnering with the best vendors and ensuring ongoing procurement value and efficiency. It goes beyond basic, transactional purchases and focuses on the big picture – how to help achieve the goals of the organization. Likewise, the vendor partnerships that result from strategic sourcing help navigate challenges as they arise while improving outcomes and reducing costs. 

Naturally, the specifics of strategic sourcing will change from one organization to the next. However, the foundation and goals of the process remain the same. Luckily, you can start your strategic sourcing efforts one project at a time.

See the bigger picture

Use the best strategic sourcing software to get the full picture approach to procurement for your team's needs.

Dave Hulsen is the Co-Founder and the Chief Operating Officer of RFP360 . He has a background in technology consulting and has issued and responded to hundreds of RFPs, RFQs, RFIs and other information requests.

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In this age of supply chain disruptions that hold the power to upend entire industries, strength and resilience across the entire value chain is no longer a nice-to-have—it’s a survival tactic. For sourcing teams, that means pivoting their mindset around selecting suppliers from a tactical, lowest-cost-above-all approach to a strategic one.

Where tactical sourcing is a short-term strategy, strategic sourcing is for long-term business goals. Sourcing and procurement professionals operating with a strategic sourcing mindset assess a supplier’s quality, reputation and service. They also factor in how a strong partnership could reduce supply chain risk and advance sustainability . Such analysis and decision-making are often optimized with the help of various technologies, including artificial intelligence tools and data analytics platforms. The benefits of strategic sourcing are vast, ranging from overall supply chain process optimization to more cost-effective, long-term relationships with partners.

The following are examples of strategic sourcing use cases:

Transparency and traceability

From fast fashion to fluorite, consumers and stakeholders are keyed into product provenance—expecting brands to uphold ethical, responsible sourcing practices. In fact, in a 2022 survey , 73% of consumers said that traceability is important to them. And from that group, 71% would pay a premium for it. Outside consumer demand for traceability, new regulations may make it imperative for some businesses: the FDA’s  Food Safety Modernization Act (FSMA)  Rule 204 requires food companies that manufacture, process, pack or hold foods on the Food Traceability List (FTL) to use traceability systems and follow new record keeping requirements.

You can read more about preparing for the FSMA here or try our FSMA 204(d) compliance module for free.

Meeting responsible sourcing demands will require strategic sourcing tactics and technology that enable transparency and traceability. Blockchain-based solutions can be leveraged to build a trusted ecosystem of suppliers and partners. How? The immutable ledger of blockchain authenticates a product’s origin and journey through the value chain.

For example, Antonello Produce wanted to provide food that its customers could trust. The company paired produce grown by its farming partners with blockchain-based traceability records using the IBM Food Trust® solution. Now, the full product history is available through just a batch or invoice number. Looking ahead, the Italian company is discussing the potential of in-store kiosks where consumers can scan QR codes on packaging to see the entire journey of their food.

In addition to ethical and responsible sourcing assurances, blockchain-based sourcing capabilities can also help guarantee high-quality products. See how Pietro Coricelli used IBM FoodTrust to guarantee the quality of its “Made in Italy” olive oil.

Sustainability

Together with traceability and transparency comes sustainability—and 60% of CEOs say they’re already feeling pressure to be more transparent about their organization’s sustainability performance.¹ With supply chains often accounting for more than 90% of the greenhouse gas (GHG) emissions associated with providing an enterprise’s products and services, strategic sourcing through the lens of sustainability is another way to reduce overall emissions and advance environmental, social and governance (ESG) goals. 2

For instance, through sustainable strategic sourcing, companies consider questions like: Do manufacturing plants minimize waste and effectively use resources? One method to ensure this is by sourcing primarily recycled materials, like Patagonia does in the production of its outdoor recreation clothing. Using recycled polyester reduces the brand’s reliance on petroleum, better utilizes waste and reduces GHG emissions. Other companies may choose to leverage a type of sourcing called near-sourcing. This involves moving sourcing activities closer to where goods or services are sold, cutting the emissions costs that come with transporting products to their final destination.

Organizations may also choose to vet each supplier to ensure their own sustainability practices align—from the suppliers of raw materials for production to those who provide shipping boxes. For example, Patagonia asks its supplier base to be certified in third-party standards, including the Recycled Claim Standard (RCS) and Global Recycled Standard (GRS) certifications. 3

Building a viable and sustainable ecosystem of partners is complex. The IBM Supply Chain Intelligence Suite , powered by artificial intelligence (AI) and blockchain, helps compile supplier data to drive Scope 3 accuracy, improve circularity by reducing waste and inform end consumers of carbon and other ESG impacts.

Cost savings

Selecting suitable suppliers to meet long-term business needs often results in contracts with more advantageous pricing and payment terms (like bulk pricing and reduced fees). While this is a cost reduction tactic for the business, a lower product or service price can translate to better prices for customers, yielding a competitive advantage.

Specific types of sourcing minimize costs in different ways. For example, insourcing, which is the opposite of outsourcing and leverages internal resources that may prove less expensive than external ones. Near-sourcing, in addition to lowering emissions, also cuts transportation costs and delivery times.  And global sourcing provides businesses with access to less expensive resources in low-cost regions.

Another way to use strategic sourcing methods to reduce costs is through digital transformation , such as automating manual processes. The cost of human error associated with manual processes can be steep, not to mention the toll it can take on trust within customer and vendor relationships. Technology that streamlines and automates transactions and contract management can significantly reduce these errors and expedite sourcing processes.

Sourcing and procurement teams may also strategically leverage data and intelligence to determine which supplier will provide the most value and minimize the total cost-to-serve. Solutions like the IBM Sterling Fulfillment Optimizer help teams execute new sourcing decisions in real time to meet fluctuating customer demand. It also can help optimize transportation costs and service-level agreements as well as improve inventory management and visibility.

Risk management

Supply chains are under tremendous stress, facing challenges from supply, demand, logistics and shifting industry landscapes. Strategic sourcing can help mitigate some of that stress by reducing potential risks associated with supplier relationships.

To start, strategically creating a broad ecosystem of quality suppliers limits the potential risks that come from dependence on one source. A diversified supplier portfolio helps organizations avoid delays, cancellations and price fluctuations from disruption.

Leveraging supply chain risk management (SCRM) software can empower organizations to build a trusted network of suppliers with optimized information and complete transparency. This technology can also help reduce the risk of regulatory non-compliance. IBM® Trust Your Supplier , for example, uses AI to continuously monitor suppliers’ regulatory compliance.

Broader technologies like supply chain control towers may also help reduce supplier risk by providing visibility across the entire end-to-end network. They use AI and real-time data to identify the impact of external events, forecast potential disruptions and recommend actions to mitigate the effects.

For some organizations, reducing risk with strategic sourcing means moving towards deglobalization by using sourcing strategies like near-sourcing and vertical integration. Apple, Nike and Tesla, for instance, have deglobalized their supply chains to reduce their dependence on foreign suppliers and gain more control. While this can limit the risk of disruption from geopolitical instability and natural disasters to a degree, reducing risk likely requires striking a balance between local and global suppliers .

Strategic sourcing : Getting started

Strategic sourcing processes vary by business, industry, geography and more. Here are some common steps to building your own process:

• Goal setting : Identify specific goals and metrics like cutting costs, improving quality control or better managing supplier risk.
• Analyzing current sourcing activities : Examine historic sourcing and business process data to find areas to improve or cut inefficient spend.
• Assessing the market : Look at market research and competitor data before making strategic sourcing decisions to benchmark your place in the market.
• Vetting and supplier selection : Establish a process for evaluating and selecting potential suppliers using a combination of supplier interviews, request for proposals (RFPs), request for quotations (RFQs) and scorecards to help.
• Ongoing supplier performance evaluation : Perform regular audits, KPI monitoring, supplier relationship management and supplier feedback collection.

To learn more about using the power of AI and automation to advance your supply chain management ambitions, explore the capabilities of the IBM Sterling Supply Chain Intelligence Suite and IBM Sterling Order Management .

1 Sustainability as a transformation catalyst , IBM Institute for Business Value, 10 January 2022.

2 Supply Chain Guidance (Link resides outside ibm.com), EPA United States Environmental Protection Agency, 17 January 2023.

3 Recycled Polyester , (Link resides outside ibm.com), Patagonia

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LONDON--( BUSINESS WIRE )--SpendEdge, a global procurement intelligence advisory firm, has announced the release of their new ’strategic sourcing analysis study on the industrial equipment manufacturing industry’ . A renowned player in the industrial equipment manufacturing industry with a considerable number of manufacturing units spread across economies was facing difficulties in analyzing their sourcing capabilities to develop robust sourcing strategies. The client was also focusing on implementing procurement automation technologies to streamline their sourcing processes, increase savings, and boost transparency.

According to the procurement analysts at SpendEdge , “One of the key trends in the industrial equipment manufacturing industry is the rise in the use of high-tech production techniques, this has led to the introduction of advanced technologies in companies owing to the pressure from domestic and foreign competitors.”

In the industrial equipment manufacturing industry, leading companies are looking at leveraging the use of strategic sourcing analysis solutions to improve their overall procurement process. Our strategic sourcing analysis solutions help players in the industrial equipment manufacturing space to integrate the end-to-end procurement process from source to contract. Moreover, it helps the industrial equipment manufacturers in developing a best-practice methodology by creating a long-term interrogable repository of supplier responses and sourcing activities across business units.

Request a free proposal to see how SpendEdge’s procurement solutions can help you.

The strategic sourcing analysis solutions offered by the experts at SpendEdge helped the industrial equipment manufacturing client develop automation technologies that assist in streamlining the sourcing process. The solutions provided also helped the client improve the efficiency throughout the operations due to the ease of use and a single view of all procurement activities.

The strategic sourcing analysis solutions offered benefits that helped the client to:

• Take advantage of new opportunities, unforeseen circumstances, and changing market factors
• Reduce sourcing cycle time
• To read more, request a free proposal

View the complete strategic sourcing analysis case study here:

https://www.spendedge.com/casestudy/industrial-equipment-strategic-sourcing-analysis

About SpendEdge

SpendEdge shares your passion for driving sourcing and procurement excellence. We are a preferred procurement market intelligence partner for Fortune 500 firms and other leading companies across numerous industries. Our strength lies in delivering robust, real-time procurement market intelligence that helps sourcing and procurement professionals make informed decisions. These innovative procurement solutions help enterprises transform structural capabilities, improve execution efficiency, and fast-track time to savings.

SpendEdge Shilpa Balakrishnan US: +1 (844) 746-0600 [email protected]

Release Summary

SpendEdge has announced the release of their case study on Leveraging Strategic Sourcing Analysis for a Leading Industrial Equipment Manufacturer

• #industrialequipment
• #procurementstrategy
• #strategicsourcing
• #procurement
• #equipmentmanufacturer
• #procurementmanagement

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Strategic Sourcing at Whirlpool China: Finding the Ideal Supplier

By: Martin Lockstrom, Thomas Callarman, Shengrong Zhang

It was April 10, 2011, when the head of Whirlpool's Asia International Procurement Office in Shanghai was informed by his colleagues that the company was about to launch a new energy-efficient…

• Length: 8 page(s)
• Publication Date: Jun 21, 2012
• Discipline: Operations Management
• Product #: W12079-PDF-ENG

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It was April 10, 2011, when the head of Whirlpool's Asia International Procurement Office in Shanghai was informed by his colleagues that the company was about to launch a new energy-efficient refrigerator model in just six months. For the new refrigerator model, the basic difference was in the motor; the current AC motor would need to be replaced with a DC motor, which was more efficient but also more expensive. He would have to find a suitable supplier of DC motors in a very short time. Delayed sourcing of components would cause delays in the production of a new refrigerator, and thus, a later launch of new products. Within the home-appliance industry, the fierce level of competition meant that any delays in launching new products would result in a loss of sales for the stragglers. How should Whirlpool go about the process of finding a suitable supplier for the required DC motor parts? Should the company explore the possibility of developing their current supplier, or should they quickly engage an existing supplier of DC motors?

Learning Objectives

The case study is written for a graduate or MBA course in purchasing and supply management or supply chain management, especially one related to setting up or designing a new supply chain. The case gives students a chance to develop their analytical and decision-making skills on a complex strategic sourcing decision. This case study should motivate students to think about the important dimensions of strategic sourcing in order to identify, evaluate and select the optimal supplier. Overall, the case involves the following issues: Strategic sourcing: searching, evaluating and selecting suppliersSingle sourcing versus multiple sourcing: pros and consTechnology sourcing versus raw material sourcingSupply risk management: hedging and alternative suppliers, mitigating supply chain disruptionsSupplier evaluation and supply-balanced score cards, key performance indicators (KPIs), supplier performance measurementSupplier performance improvement and developmentSupplier quality management: total quality management (TQM), supplier certification (ISO 9001 and TS16949)

Jun 21, 2012

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W12079-PDF-ENG

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Successful procurement turnaround: 6 case studies to inspire.

Are you looking for inspiration and proven strategies to turn your procurement process around? Look no further! In this blog post, we will delve into the fascinating world of successful procurement turnaround, exploring six compelling case studies that are sure to inspire you. Procurement is a critical function in any organization, and when it faces challenges or inefficiencies, it can have a significant impact on the overall success of the company. But fear not! These real-life examples from industry giants such as Johnson & Johnson, IBM, Microsoft, General Electric, Cisco Systems, and Walmart will provide valuable insights into their approaches and how they achieved remarkable transformation. So buckle up and get ready to be inspired by these incredible stories of triumph in the realm of procurement. Whether you’re an aspiring procurement professional or a seasoned veteran looking for new ideas – this blog post has something for everyone!

The Challenge of Procurement Turnaround

Procurement turnaround is no easy feat. It requires a deep understanding of the organization’s current procurement practices , identifying inefficiencies, and implementing strategic changes to drive improvement. One of the main challenges faced in procurement turnaround is breaking free from traditional ways of doing things and embracing innovative approaches.

Often, organizations find themselves stuck in outdated processes that hinder efficiency and cost-effectiveness. Legacy systems, lack of transparency, and resistance to change can all contribute to this challenge. Additionally, shifting market dynamics and evolving supplier relationships create further complexities for procurement professionals .

Another hurdle is gaining buy-in from key stakeholders within the organization. Convincing top-level management about the need for change and securing their support can be an uphill battle. Without their backing, it becomes difficult to implement new strategies or invest in advanced technologies that could revolutionize procurement operations .

Furthermore, there may be a shortage of skilled talent with expertise in modern procurement practices. Finding individuals who possess the necessary skills to lead a successful turnaround can be challenging but crucial for achieving desired results.

Overcoming these challenges requires a combination of vision, persistence, adaptability,and strong leadership skills. By acknowledging the obstacles and proactively addressing them head-on through innovation and collaboration across departments,a successful procurement transformation is possible

The Approach to Successful Procurement Turnaround

When it comes to successful procurement turnaround, there are certain approaches that can make all the difference. It requires a strategic mindset, attention to detail, and a willingness to challenge the status quo.

It is essential to conduct a thorough analysis of the current procurement processes and identify areas for improvement. This includes identifying inefficiencies, bottlenecks, and outdated practices that may be hindering productivity. By understanding the root causes of these issues, organizations can develop targeted strategies for improvement.

Next, effective communication and collaboration are crucial in achieving successful procurement turnaround. This involves fostering strong relationships with suppliers and stakeholders, as well as promoting cross-functional teamwork within the organization. By aligning objectives and sharing information openly, teams can work together towards common goals.

Another key aspect of successful procurement turnaround is leveraging technology and data analytics. Implementing advanced software solutions can streamline processes, automate repetitive tasks, and provide real-time insights into supplier performance and market trends. This enables organizations to make informed decisions based on accurate data.

Furthermore, continuous monitoring and evaluation play a vital role in sustaining successful procurement turnaround efforts. Regularly reviewing key performance indicators allows organizations to track progress over time and identify areas that require further attention or adjustment.

Lastly but importantly is investing in talent development within the procurement team itself. Providing training opportunities helps enhance skills sets needed for efficient purchasing operations while also motivating employees through growth opportunities.

By adopting these approaches collectively or selectively depending on organizational needs will pave way for a successful procurement turnaround journey!

Case Study #1: Johnson & Johnson

Johnson & Johnson, a multinational pharmaceutical and consumer goods company, faced significant procurement challenges that required a successful turnaround. With an extensive product portfolio and complex supply chain, they needed to optimize their procurement processes for cost savings and efficiency.

To address these challenges, Johnson & Johnson implemented a comprehensive procurement transformation strategy . They focused on streamlining supplier relationships, enhancing contract management , and leveraging technology solutions to improve visibility across the supply chain.

By consolidating suppliers and negotiating better contracts , the company achieved substantial cost reductions. Additionally, they invested in innovative technologies such as data analytics and automation tools to drive process efficiencies.

One of their key initiatives was implementing a centralized procurement function to standardize processes globally. This allowed them to leverage economies of scale while maintaining consistency in purchasing practices across different regions.

Furthermore, Johnson & Johnson emphasized collaboration with suppliers through initiatives like joint innovation programs and early involvement in product development. This helped foster stronger partnerships based on trust and mutual benefit.

By adopting a strategic approach focused on supplier optimization, process improvement, technology adoption, and collaboration with suppliers; Johnson & Johnson successfully turned around its procurement operations leading to improved performance metrics across the board. The lessons learned from this case study can inspire other companies facing similar challenges in achieving successful procurement turnarounds.

Case Study #2: IBM

IBM, one of the world’s leading technology companies, faced significant procurement challenges in the past. However, through a strategic and focused approach to turnaround their procurement function, they were able to achieve remarkable results.

One key aspect that contributed to IBM’s successful procurement turnaround was their emphasis on supplier relationship management . They recognized the importance of building strong partnerships with suppliers and worked closely with them to align their goals and objectives.

Additionally, IBM implemented advanced data analytics tools to gain deeper insights into their supply chain processes. By leveraging these tools, they were able to identify inefficiencies and bottlenecks in their procurement operations, leading to improved cost savings and increased efficiency.

Furthermore, IBM embraced innovation in their procurement practices by adopting emerging technologies such as artificial intelligence (AI) and blockchain. These technologies enabled them to streamline processes like vendor selection, contract management, and payment processing.

Moreover, IBM prioritized sustainability in its procurement strategy . They actively sought out suppliers who shared similar values regarding environmental responsibility and social impact. This not only helped reduce costs but also enhanced brand reputation among environmentally-conscious consumers.

In conclusion, IBM’s successful procurement transformation serves as an inspiration for other organizations facing similar challenges. By focusing on supplier relationships, embracing technological advancements, and incorporating sustainable practices within their procurement strategy, IBM was able to overcome obstacles and achieve significant improvements throughout their supply chain. Their case study showcases how a well-executed turnaround can drive success in even the most complex of environments

Case Study #3: Microsoft

Microsoft, the tech giant known for its software products and services, had faced its fair share of procurement challenges in the past. However, with a focused approach and strategic initiatives, they were able to successfully turn things around.

One key aspect of Microsoft’s procurement turnaround was their emphasis on building strong relationships with suppliers. They recognized that collaboration and mutual trust were essential for achieving long-term success. By working closely with their suppliers, they were able to gain valuable insights into market trends and negotiate better deals.

Another critical factor in Microsoft’s procurement success was their adoption of innovative technologies. They leveraged automation and analytics tools to streamline processes, improve efficiency, and reduce costs. This enabled them to make data-driven decisions and identify areas where savings could be maximized.

Additionally, Microsoft implemented a comprehensive supplier performance management system. This allowed them to monitor supplier performance metrics regularly, identify any issues or bottlenecks promptly, and take necessary corrective actions.

Furthermore, Microsoft prioritized sustainability in their procurement practices. They actively sought out suppliers who shared their commitment to environmental responsibility and ethical sourcing . By incorporating sustainability criteria into their vendor selection process, they not only reduced risks but also contributed positively towards social impact goals.

Case Study #4: General Electric

When it comes to successful procurement turnaround, General Electric (GE) has been a prime example. This multinational conglomerate faced significant challenges in its procurement processes , but managed to turn the tide and achieve remarkable results.

One of the key factors that contributed to GE’s success was their focus on strategic sourcing. They recognized the need for a more streamlined and efficient approach, which led them to implement advanced technology solutions and adopt best practices in supplier management .

Additionally, GE prioritized collaboration with its suppliers. By fostering strong relationships built on trust and open communication, they were able to leverage their supplier base for improved cost savings and innovation. This collaborative approach also helped mitigate risks associated with supply chain disruptions.

Furthermore, GE invested in talent development within their procurement team. They focused on hiring skilled professionals who possessed both technical expertise and strategic thinking capabilities. Through training programs and continuous improvement initiatives, they ensured that their team was equipped with the necessary skills to drive positive change.

Another critical aspect of GE’s success was their commitment to data-driven decision making. They implemented robust analytics tools that provided real-time insights into spend patterns, supplier performance metrics, and market trends. This empowered them to make informed decisions quickly and effectively.

Moreover, GE embraced sustainability as a core value within their procurement function. They incorporated environmental considerations into their sourcing strategies by actively seeking out suppliers who met stringent sustainability criteria.

General Electric’s successful procurement turnaround can be attributed to its comprehensive approach encompassing strategic sourcing, supplier collaboration , talent development, data-driven decision making,and sustainable practices. Their story serves as an inspiration for other organizations looking to transform their procurement processes for greater efficiency and effectiveness

Case Study #5: Cisco Systems

Cisco Systems, a global leader in networking and IT solutions, faced significant procurement challenges during the economic downturn. With declining revenue and increased competition, they needed to find innovative ways to improve their procurement processes and drive cost savings.

To tackle this challenge, Cisco implemented a comprehensive procurement transformation program. They focused on streamlining their supplier base, optimizing their sourcing strategies, and enhancing collaboration with key partners.

One of the key initiatives was the implementation of an advanced analytics platform that provided real-time insights into spending patterns and supplier performance. This allowed Cisco to identify areas for cost reduction and negotiate better contracts with suppliers.

Additionally, Cisco leveraged technology to automate manual processes such as purchase order management and invoice processing. By digitizing these tasks, they were able to reduce errors and cycle times while improving overall efficiency.

Furthermore, Cisco embraced a culture of innovation by actively seeking input from employees across different departments. This cross-functional collaboration resulted in creative ideas for cost-saving initiatives such as implementing green procurement practices and consolidating purchases through strategic partnerships.

Through these efforts, Cisco achieved remarkable results. They reduced costs by millions of dollars annually while improving supplier relationships and overall operational efficiency. Their successful turnaround serves as an inspiration for other companies facing similar challenges in the procurement space.

In conclusion…

The case study of Cisco Systems demonstrates the power of proactive measures in driving successful procurement turnarounds. By adopting innovative technologies, fostering collaboration across functions, and prioritizing data-driven decision-making; organizations can achieve substantial improvements in cost savings , efficiency gains ,and supplier relationship management . As we have seen from these six inspiring case studies , there is no one-size-fits-all approach when it comes to procurement turnaround ; each company must tailor its strategy based on its unique circumstances . However , what remains consistent is the need for bold leadership commitment , cultural transformation ,and continuous improvement efforts throughout the organization . By learning from these success stories will help companies navigate the complexities of procurement challenges and pave the way for a successful turnaround

Case Study #6: Walmart

Walmart, the retail giant known for its low prices and extensive product offerings, faced significant procurement challenges in the early 2000s. The company realized that it needed to revamp its procurement processes in order to stay competitive in an ever-changing market.

One of the key strategies implemented by Walmart was a focus on supplier relationships. They recognized that building strong partnerships with their suppliers would not only ensure a steady supply of goods but also enable them to negotiate better pricing terms. By collaborating closely with suppliers and sharing information about customer demand, Walmart was able to streamline its procurement operations and reduce costs.

Another crucial aspect of Walmart’s turnaround was the implementation of technology solutions. The company invested heavily in developing advanced inventory management systems and data analytics tools that provided real-time insights into sales trends and inventory levels. This allowed them to optimize their stock levels, avoid overstocking or understocking, and ultimately improve efficiency throughout their supply chain.

Furthermore, sustainability became a core focus for Walmart during its procurement turnaround. The company made efforts to source products from sustainable suppliers who adhered to ethical practices and reduced environmental impact. This not only aligned with changing consumer preferences but also enhanced brand reputation.

Walmart’s successful procurement transformation can be attributed largely to their commitment to innovation and continuous improvement. By prioritizing supplier relationships, leveraging technology solutions, and embracing sustainability practices, they were able to overcome challenges and achieve remarkable results.

As we have seen through these case studies featuring Johnson & Johnson, IBM Microsoft General Electric Cisco Systems ,and now Walmart – there is no one-size-fits-all approach when it comes to successful procurement turnarounds.

Stay tuned as we explore our final thoughts on this topic!

Successful procurement turnaround is a challenging endeavor, but these six case studies demonstrate that it is possible to overcome obstacles and achieve remarkable results. Johnson & Johnson, IBM, Microsoft, General Electric, Cisco Systems, and Walmart have all faced their fair share of procurement challenges and managed to turn things around.

The key approach to successful procurement turnaround involves strategic planning, collaboration with suppliers and stakeholders, leveraging technology and data analytics for better decision-making, implementing streamlined processes and systems, fostering innovation within the organization, and continuously monitoring performance metrics.

Johnson & Johnson’s focus on supplier relationship management enabled them to improve efficiency while reducing costs. IBM’s adoption of cloud-based procurement solutions revolutionized their sourcing process. Microsoft’s centralized approach helped them align global purchasing operations effectively. General Electric utilized strategic partnerships with suppliers for cost reduction initiatives. Cisco Systems leveraged technology to streamline procurement processes across various business units. Walmart’s commitment to sustainability translated into substantial savings through supplier collaboration.

These case studies serve as inspiration for organizations facing similar challenges in the realm of procurement . By learning from these success stories and adopting best practices tailored to their specific needs, companies can transform their procurement function into a strategic asset that drives growth and profitability.

In conclusion (but not using those words!), successful procurement turnaround requires a combination of strategy formulation, effective execution tactics,and continuous improvement efforts.

It may require significant effort,but the rewards are well worth it: cost savings,increased operational efficiency,better supplier relationships,and ultimately,a competitive edge in the marketplace.

Are you ready totake your organization’sprocurement functionto new heights? Let thesecase studies be your guideon this transformationaljourney!

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