Strategic Sourcing to Prioritize Resources in SCRM Programs

When unforeseen events negatively impact the supply chain, alternative options are often already limited. Strategic sourcing in supply chain management mitigates unexpected risks by enhancing your understanding of your existing supply chain, expanding your range of potential suppliers, reducing costs, and providing greater options, such as on packaging, delivery, and distribution.

Applying Insights from Supplier Illumination

Strategic sourcing is the next logical step for an organization engaged in supply chain illumination. Once the supply chain is mapped several tiers deep, it’s time to turn insight into action.

With supplier illumination, the SCRM team can identify risks and inefficiencies in the supply chain at lower levels. Supplier illumination is the first step. Organizations can no longer afford to be caught unaware by challenges to subcontractors or subcomponent manufacturers down the chain. Imagine the cost of being unable to replace a supplier that can’t meet its obligations because its own raw materials suddenly became unavailable due to war, a local public health problem, a labor shortage or strike, a foreign power’s industrial espionage, or a global shipping or trade slowdown.

Knowledge of potential alternative suppliers decreases over-reliance on an incumbent supplier or supplier group because it presents new options that organizations can turn to, especially if problems in their existing supply chain begin to emerge. Left as is, some incumbents may exploit buyer dependency in the form of elevated markups, slackening focus on quality and value, or offering static options and little innovation. Organizations frequently find that alternative supply chain options developed through strategic sourcing deliver return on investment beyond initial cost-savings goals.

How Strategic Sourcing Supports Supply Chain Flexibility

Among other things, having more sourcing options improves the understanding of the complete value chain and may enable buyers to negotiate a wider range of delivery options and methods from suppliers. This in turn helps organizations grow and innovate by doing things like experimenting with new workflows, driven by greater assurance of on-time delivery precisely when and where inputs are needed most.

Applying the results of supply chain illumination to strategic sourcing additionally can help protect against an emergency or unforeseen disaster. For example, if an organization’s primary manufacturing facility is halted or slowed due to weather, a fire or other safety circumstance, political disruption, or other issues, plans put in place through strategic sourcing can provide greater continuity of production. Such solutions might include bringing an alternative third-party manufacturing plant into the fold or redirecting supplier deliveries to a secondary supplier facility for these contingencies.

Don’t Wait for a Crisis

Too frequently, organizations only become aware of the importance of strategic sourcing when a crisis strikes. The time to take action is not after a plant has had to partially shut down due to a worker injury, a Category 5 storm threatens transportation routes and warehouses, a tariff has been imposed, or a critical global trade route has become hopelessly snarled. At that point, an organization would be in crisis-management mode to implement emergency measures to work around the problem. A comprehensive approach to strategic sourcing requires time and expertise, and those potential actions should be planned for, and worked out in advance whenever possible, so that the crisis can be less of one.

Additional Value Creation from Strategic Sourcing

As a continuously practiced discipline, strategic sourcing can deliver ongoing benefits beyond enhancing the stability and security of a supply chain, including:

How Guidehouse Can Help

Given our professionals’ deep experience in industries and supply chains, we can bolster your SCRM program with strategic sourcing capabilities that chip away at compound risks across the spectrum, from new decarbonization regulations and geopolitical instability to supplier complacency, and from cyber-attacks on your third parties and increased counterfeit parts to banning the inclusion of components potentially made with forced labor. Guidehouse can benchmark your current sourcing capabilities against prevailing practices within your industry and those deployed by your closest competitors, and immediately add greater insight into your risk exposure and potential alternatives to ameliorate that risk and to give you more sourcing options. 

Speak with us to find new ways to use strategic sourcing to uncover new sourcing opportunities, develop a more dynamic partner-management strategy, and leverage negotiations that emphasize innovation, not just price.

Read up on new methods to advance your SCRM program, and tips for supply chain illumination. Or contact a Guidehouse expert to discuss expanding your strategic sourcing efforts.