Going Straight to the Sourcing
Strategic sourcing, which consultants popularized in the late 1980s/early 1990s, is a supply chain management approach that formalizes the way organizations gather and use information to leverage consolidated purchasing power and find the best values in the marketplace.
Strategic sourcing involves developing supply channels at the lowest total cost, as opposed to the lowest purchase price. It expands upon traditional purchasing to include all activities within the procurement cycle—from specification to receipt and payment of goods and services.
Many users achieved significant savings. However, there wasn't necessarily a focus on other costs, and they often neglected longer-term, collaborative relationships with suppliers.
To pursue these opportunities, some purchasers coordinated efforts with their organization's supply chain and operational executives. This evolved into Lean Strategic Sourcing (LSS), which provides four strategic benefits:
- Greater buy-in from key functional areas that care about both cost and performance.
- Improved chances of implementing identified sourcing savings.
- Improved quality and reduced waste.
- Additional cost reduction opportunities via collaboration with supply partners.
Steps to Implementation
Here's how to implement Lean Strategic Sourcing:
- Collaborate to streamline and redesign procurement operations and purchasing to improve financial performance.
- LSS, at a granular level, takes advantage of Kaizen strategies. One way to achieve it is by improving logistics management and its associated costs, such as taking control of and consolidating shipments and analyzing costs. This requires constant focus on cost cutting that does not compromise quality or reliability, and provides a balance between sourcing and operations.
- LSS relies on reducing waste of time, efforts, and funds through better compliance and process improvement initiatives.
- Collaborating with suppliers to develop favorable contract terms, optimize transport costs, and create a supply network that minimizes the chances for potential disruptions.
Ultimately, LSS success requires that organizations:
- Map and communicate an LSS process to facilitate buy-in across the company. Cross-functional input provides a common understanding of sourcing processes as well as issues that impact the company, enabling solutions that address problem areas.
- Develop project milestones and deadlines to drive results.
- Create a team member incentive structure and compensation plan tied to process improvement results.
- Consider global markets for certain product categories, but model potential risks and mitigation strategies.
Remember "structure follows strategy." It is best to first develop and refine your LSS, then make sure that your supply chain and operations structure are aligned. That gives you a better chance for future success.