Let me let you in on a big secret: Procurement professionals are not there to deliver cost savings. They are enablers to profitable growth through sound strategic sourcing practices.
Strategic sourcing.
What the heck does that even mean?
Strategic sourcing is a way of looking at procurement within your supply chain strategy as something far more than just transactional negotiations during the process of conducting RFPs.
Strategic sourcing is a powerful method for building strong relationships with suppliers that not only improve your supply chain efficiency but lead to a strong competitive advantage.
When I started my career in purchasing, I focused on the tactical, transactional side of things because it was my job. While this was appropriate for the role I was in, as I oversaw local purchasing for a manufacturing site, I didn’t have a solid grasp of what procurement was.
When I was asked to consider procurement as a career move in the early 2000s, I still had not come to realize that procurement is a strategic business function that can drive innovation, enhance efficiency, and promote sustainability.
I was offered a role in procurement because of my supply chain and finance background – skills my employer wanted to leverage to change the way they approached purchasing. Given my experience, I made it my business to understand the value drivers of everything I was buying and to go after the waste. It was during this time that I discovered the importance of working strategically with my suppliers. It was about building trust and acknowledging to them that I recognized my company as a source of some of the waste. We – as a company – had to change how we worked with our supplier partners.
By creating an environment of trust, my suppliers were willing to listen. These relationships, which I now value a great deal, create win-win situations that yield innovative solutions, better service, and greater value over time.
Supplier Relationships Strengthen Supply Chains and Deliver Innovation
There are too many companies that are focused on transactional purchasing. It’s not enough for your procurement professionals to focus solely on the purchasing process. Procurement is there to enable the business and they need to ensure their organizations are a customer of choice. Building relationships with strategic partners as a customer of choice will help drive the top line, by generating innovative ideas from the supply base.
There are many examples of supplier-driven innovations in various industries. One example is the Swiffer, which was brought to Proctor & Gamble by a Japanese company named Unicharm. Unicharm had developed a new type of floor-cleaning cloth that was more effective than traditional methods. Proctor & Gamble saw the potential for this product and worked with Unicharm to develop the Swiffer.
“Building relationships with suppliers is a game-changer.” – Iain Campbell McKenna, Senior Global VP at LavenirAI
How Does Procurement Deliver Value to the Business Through Strategic Supplier Relationships?
Procurement serves the business’s needs. It drives profitable growth by understanding all the value drivers in the end-to-end supply chain. It is about understanding the total cost equations. Sometimes, this could mean paying more for materials on the backend, if doing so from an alternative source might increase inventory turns and reduce working capital.
Unfortunately, most procurement professionals don’t think this way because they are not incentivized to do so. They focus only on cost savings rather than the end-to-end value drivers. Organizations need to change the paradigm and train procurement professionals to focus on operational efficiencies and working capital savings.
The key to relationship building between businesses and their suppliers boils down to communication and collaboration. However, it starts with building strong internal relationships with key stakeholders.
Procurement must understand what the CFO needs. If there are not enough sales, how does procurement contribute to OpEx savings? Suppliers play a significant role in this space. Building long-term relationships requires your procurement team to develop a better understanding of suppliers’ capabilities, values, and long-term objectives; this can provide a foundation for partnerships that are based on trust, open communication, and shared goals. Strong supplier relationships enable businesses to tap into their suppliers’ expertise and resources, driving innovation and enhancing overall operational efficiency. Strong supplier relationships can help mitigate risks, as suppliers become invested in the success of the business and are more likely to provide support during times of crisis.
“Building solid relationships with suppliers is crucial in creating a more collaborative and mutually beneficial working environment, which can foster innovation and creativity.” – Steve Rice, Director of Global Partnerships & Program Development, The Globally Conscious Leader®
Benefits of Strategic Sourcing for Building Strong Supplier Relationships
By using strategic sourcing to build strong supplier relationships, businesses can often reduce costs by leveraging their suppliers’ expertise in cost optimization and process improvement. Through collaboration and open communication, businesses can work together with suppliers to identify cost-saving opportunities, streamline processes, and enhance overall efficiency. This not only drives down costs but also improves the quality of products and services.
Strong supplier relationships inspire a collaborative approach that fosters innovation and promotes continuous improvement by actively involving suppliers in the product development process. Suppliers can provide valuable input and suggestions for product enhancements, helping businesses stay ahead of the competition and meet evolving customer demands.
These strong supplier relationships also help businesses mitigate risks and enhance supply chain resilience. When businesses have strong relationships with their suppliers, they gain access to alternative sources of supply, enabling them to adapt to disruptions in the market quickly. Suppliers who feel valued and appreciated are more likely to prioritize stronger business relationships, ensuring continuity of supply, even in challenging times.
Key Strategies for Building Strong Supplier Relationships
Building strong supplier relationships requires a proactive and strategic approach. Here are some key strategies that businesses can adopt to cultivate strong and mutually beneficial supplier partnerships.
Effective communication and collaboration with suppliers
Open and transparent communication is the foundation of any strong relationship, and supplier relationships are no exception. Businesses should establish clear channels of communication with their suppliers, ensuring that both parties have a platform to share information, discuss challenges, and collaborate on solutions. Regular meetings, site visits, and joint planning sessions can help foster a culture of collaboration and mutual respect. There needs to be a governance model that drives communication and collaboration at all levels of the organization, from top-to-top meetings down to local-to-local relationships at the factory level.
Implementing performance metrics and evaluation systems
To ensure that suppliers meet a business’s expectations, it is essential to implement performance metrics and evaluation systems. These metrics should align with the business’s goals and objectives, allowing for a comprehensive assessment of supplier performance. By tracking and evaluating supplier performance, businesses can identify areas for improvement, address any issues promptly, and recognize and reward suppliers who consistently deliver exceptional results.
Developing a supplier development program
Investing in the development of suppliers can yield significant long-term benefits for a business. By providing training, resources, and support, businesses can help suppliers enhance their capabilities, improve quality standards, and adopt best practices. This not only strengthens a supplier’s ability to meet the business’s requirements but also fosters a sense of loyalty and partnership.
Procurement, first and foremost, is a business partner and therefore a vital part of the value chain. They are there to create value, often by using an outside-in approach to innovation to boost top-line growth or by delivering value through decreased cost. Reducing their environmental impact, improving the capabilities of their suppliers, and lowering costs are all part of the margin improvement equation. Strategic sourcing is not just about purchasing but also about relationship building, and it means having a variety of sources at the ready when things go off-kilter.
2 thoughts on “Procurement Drives Business Value Through Strategic Sourcing”