Six Key Steps to Sustainable Procurement Success

Editor’s Note: As the Director at Excella Worldwide, Shruti Agrawal is a strategist with an Electronics Engineering background.

The purchasing function plays a vital role in driving revenue and requires superior capabilities to ensure long-term competency. Companies can rise above competition only when they acquire the required capabilities from the right source at the right pricing. Strategic sourcing empowers a company to take complete advantage of cost and capability delivered by low-cost traders, suppliers and sourcing agents. Here is an easy-to-follow framework designed to give you a competitive advantage:

1. Increasing Cost Savings
Strategic sourcing plays a key role in improving the bottom line of any business and has a direct impact on cost savings. A profitable procurement model entails the accurate assessment of supplier negotiations and current spending. Improving internal collaboration between key units will help in identifying existing gaps. Sourcing agencies can invest in e-sourcing technologies to identify leakages in sourcing projects. Using the supply base as a resource can significantly increase efficiency and reduce cost.

2. Building Superior Capabilities That Create Value
Conducting an in-depth market analysis helps in identifying capabilities that have the potential to pump up the performance of your organization. It all starts with hiring the right sourcing agents and training them to assessing supplier risk and forecasting future spend. Procurement value can be created by bringing down the external spend through automation and focusing on effective supplier relationship management. It is essential to implement a company-wide mandate on procurement policies to create accountability. A standard operating procedure with a formal approval framework will help in maintaining consistency and transparency.

3. Driving Change Through Cross-Functional Collaboration
Instituting a purchase council where sourcing agents have the autonomy to take a leadership role can result in fundamental operational changes. To build world-class purchasing capabilities that drive value, it is important to employ approachable senior role models who can initiate a new culture that creates confidence in new hires. Rewarding and publicizing staff success will motive the sourcing agents to become change agents. Key purchase agents can set up on-job coaching programs where they transfer their expertise and capabilities to the newly formulated cross-functional teams. When the sourcing team works in tandem with other internal groups like finance and operations, it becomes easy to align financial targets and keep tabs on potential saving opportunities.

4. Implementing A Centralized Inventory Management System
The sourcing agents can generate a vendor evaluation system where performance data is tracked to study the savings generated. This will help in establishing a benchmark for every contracted vendor. It is important for sourcing agencies to have a centralized inventory management system that:

• Confirms the receipt of order
• Checks the quality of consignment
• Ensures that the right quantity is received
• Delivers the consignment to the right destination
• Verifies the documents
A sound contractual agreement will keep you guarded against the issues that arise when material is lost during transit, dispatch is not reported by the vendor, goods get tampered during transit, or when the right quantity or required quality is not delivered.

5. Measuring Supplier Performance
The supplier performance is evaluated on the ability to deliver the right quantity and quality of goods at the right time. However, the transportation and distribution is a complex function that is impacted by a number of factors like stock levels, delivery cycle, and lead time. Compile a list of vendors who are consistent with the quality, quantity, and delivery timing. You can study the following areas to identify the potential best fits:
• Capabilities to meet your project requirements
• Capacity to fulfil your future requirements
• Financial resources to aid your future plans
• Motivation to innovate products and services that will give you a competitive edge
• A professional approach and responsiveness

6. Linking Processes with Technology
Strategic sourcing is moving ahead at a spectacular paced which demands the ability to link every business process with advanced technology. When a sourcing agency monitors every move across the organization, it can easily drive down the cost and improve customer management. Technology has the potential to provide a holistic view of every function to facilitate fair and timely value chain decisions. Technology eliminates the discontinuity created due to geographical boundaries and coordinates every department and function for improved productivity and ease of operation. Investing in sophisticated infrastructure makes it easy to track the movement of products and facilitates consistent communication for improved supplier relationships while reducing customer service constraints.

Everything mentioned above will empower you to drive down cost and boost your bottom line.

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