Strategic sourcing value beyond cost savings in times of crisis
The emergence of COVID-19 continues to present financial strain on multiple businesses across the globe. While most companies are looking into cost-saving initiatives, strategic sourcing is yet again placed in the spotlight. With reducing spending as one of its key strategic goals, strategic sourcing is now more pressured to deliver value, particularly in times of crisis.
Speaking at the seventh Annual Smart Procurement World Western Cape Conference & ESD Expo 2020, Barloworld Automotive & Logistics Executive for Strategic Sourcing, Sydney Tshibubudze unpacked critical developments in the profession, including the much-debated topic around strategic sourcing value beyond cost savings and measures businesses can take to keep afloat.
COVID-19 has emphasised the need for strategic sourcing to assist organisations in building resilience in erratic, intricate and uncertain times through its alignment to the supply chain function and the broader market.
With different stakeholders' perspectives on what strategic sourcing value must offer, from returns on earnings, profit, competitive advantage to improved revenue generation and compliance with BEE regulations, strategic sourcing should support the company's overall business strategy. Furthermore, strategic sourcing should adopt a more strategic approach that targets performance beyond simple cost savings in times of crises and look towards cash preservation, revenue generation (reciprocal business approach) and operational efficiency. While the profession can now focus on multi-tier supplier integration and sustainable supply chain improvements, strategic sourcing professionals can also explore the following avenues to deliver the much-needed value to their organisations:
Product innovation and technology development from the supply market
Strategic sourcing professionals should keep abreast of the latest innovations in industries they operate in, ensuring they understand and leverage the technological innovations in the market to improve and transform the companies they work for. Research plays a critical role in this process as technology development can be utilised for revenue generation. In addition, a reciprocal business approach ensures the organisation deals with a potential customer for revenue generation. To achieve this, strategic sourcing professionals should have a clear understanding of their organisation's products and service offerings to identify potential supplier-customer candidates.
Supplier performance improvement and capability augmentation
When suppliers are not effectively managed, value gets leaked. Paying a close eye on suppliers' performance ensures there is no value leak from the concluded value agreement. While suppliers deliver on their obligation, strategic sourcing leaders need to get the value the company paid for through an end-to-end category management approach.
Mitigation of supplier risk and supplier financial disruption avoidance
Extensive supplier due diligence is imperative for minimising any reputational risks that may be associated with the company, including and not limited to corruption. Moreover, it is pivotal to assess the supplier's financial position to ensure that no exploitation takes place where they are paid but never deliver. Reputational risk damage associated with suppliers can wipe the organisation's goodwill and market capitalisation value attained over the years in a matter of hours or days.
Previously, strategic sourcing professionals would look into four key areas: the relationship with the supplier, the concluding of the agreement, outsourcing and alliances. With the profession evolving, strategic sourcing is a continuous process that goes far beyond just the cost of a product or service. It assists companies in achieving efficiencies by cutting waste out of the supply chain for both parties.
Read our article, Strategic sourcing: taking procurement to the next level to learn more.
With this evolution, the emphasis is now placed on breakthrough strategic sourcing value levers such as: managing innovation, managing the market, and working with complexity. By managing innovation, strategic sourcing can deliver value through collaborations, and long-term focused relations with suppliers. When managing markets, strategic sourcing leaders ought to leverage the expertise and the relationships they have with service providers who align them entirely with their business models, in a reciprocal manner. And lastly, value creation in business remains the order of the day. In the past, economies of (industrial) scale were crucial; however, there is now a shift to economies of creativity, with the primary aim to find solutions to perplexing business and customer problems.
The catastrophic economic environment presented by coronavirus has propelled the industry to recognise that the conventional strategic sourcing levers to reduce costs alone are no longer sufficient to keep businesses afloat. It is more imperative now to create visibility of spend by outlining what is being purchased and developing governance framework and enforcing control to monitor how money is being utilised within the company. By streamlining processes and driving efficiencies, organisations can manage their spending effectively and build capabilities to drive cost savings through skills, tools, and systems.
The underlying factor is people - ensuring that capacity is built through attracting, recruiting and retaining top strategic sourcing professional talent to unlock value and increase return on investment. By focusing on some of the breakthrough strategic sourcing value levers discussed, strategic sourcing professionals will be able to improve their companies' financial resilience in challenging times.
Barloword Group has established a strategic sourcing centre of excellence to leverage best practices to create value across the organisation by taking advantage of the combined buying power. As part of strategic sourcing transformation journey, Barloworld intends to offer strategic sourcing smart solutions to the market as part of the smart supply chain solution offerings.
Need a smart supply chain solution? Look no further! Contact us to find out how Barloworld Logistics can help you achieve your business goals.