Good procurement procedures help building operators and contractors get the materials they need to keep a commercial building or multifamily property running in a timely and efficient fashion. Great procurement procedures get those same goods at the lowest cost possible. But procurement in itself isn't enough. It focuses on the immediate rewards instead of what's good for the business over the long term. That's where strategic sourcing comes in.
Strategic sourcing is the next evolution of procurement. Not only does it reduce the cost of materials, it also helps building owners and managers ensure strong long-term supplier relations and avoid disruption to the supply chain in the future. The end goal is a procurement strategy that builds a mutually beneficial relationship between suppliers and the business, as well as evolves with the changing needs of the company.
The key to strategic sourcing lies within current procurement data that can unlock even more benefits for your business.
The Business Benefits of Strategic Sourcing
The most obvious benefit is the cost-saving associated with strategic sourcing. Strategic sourcing can eliminate spending outside of contracted suppliers. Maverick spending eats away at the bottom line. Strategic sourcing can also help a company secure the best pricing and service levels on goods through negotiated terms and examines the total cost of ownership of an item, not just the upfront cost of purchasing it. That can lead to greater long-term savings.
Improved Supplier Relations
Strategic sourcing focuses on finding the “best fit” vendors as opposed to building partnerships based solely on the lowest price. This practice determines which supplier is the most reliable, has the quickest response time, and is most in line with the business' goals. After these suppliers are identified, strategic sourcing managers can focus on building long-term relationships, which increase in value over time. After all, suppliers are more likely to improve service, pricing, and performance if they have a history with a buyer.
Fewer Disruptions to Supply Chain
This is an important reason, especially given the current state of the world. When you work with select suppliers chosen—at least in part—for their ability to pivot, it makes it easier to avoid disruptions to your supply chain. As everyone knows, disruptions in the supply chain can mean important building assets and equipment aren't being properly maintained or repaired. That leaves tenants frustrated and less like to renew their leases. If you’ve built a history with agile suppliers, you’re likely to weather a supply chain storm with greater ease.
It all boils down to one word: DATA.
A close look at your business' data will guide the implementation of strategic sourcing into current procurement processes.
Here are seven steps that will help you transform mere procurement into strategic sourcing:
1. Start with a big picture analysis. Look at all purchasing data, then break it down into different departments and locations. Analyze different spending categories, as well as patterns in buying. The more granular the data, the more information you have to analyze.
2. Create a strategic procurement plan based on the business' needs. Create forecasts using historic data about what you’ve purchased, when, and for which locations will help guide the strategic planning. For instance, if you’ve negotiated a discount on certain printer cartridges but they’re not being used, you can direct your efforts elsewhere.
3. Analyze the supplier market. What suppliers can provide your business with the Maintenance, Repair and Operations (MRO) products needed to keep buildings running and in repair? Develop portfolios about potential suppliers, including their strengths and weaknesses.
4. Define your supplier criteria. Know what the business needs from suppliers so it's easier to determine who can meet the criteria and who can't. Determine what qualities are most important in your suppliers and engage them accordingly.
5. Negotiate with a list of select suppliers. Reach out to a carefully chosen list and start the negotiation process for products under contract.
6. Incorporate the new suppliers into your procurement program. Make it easy for contractors and employees to order from the new suppliers. This helps eliminate maverick spending and increased costs. An easy-to-use one-click procurement platform can decrease employee reluctance to use traditional (aka cumbersome) ways of buying.
7. Track the performance of all suppliers. Make sure suppliers are adhering to terms and conditions and providing the optimum level of service. Continually analyze their performance, as well. If they aren’t up to par, investigate potential new suppliers who may be better suited to serve the business.
4 Metrics to Consider for Strategic Sourcing
Businesses need to understand what data to look at to create a strategic sourcing process. Here are four pieces of must-have data for strategic sourcing managers and why they matter.
Discover more metrics for optimizing MRO supply chain procurement here.
1. SPEND ANALYTICS
This one is crucial. Procurement teams need to know how much is being spent, when, and where. Without the data, procurement is often hit or miss, because it depends on assumptions and biases of the people doing the purchasing and installation of MRO products.
2. PRODUCT QUALITY
How long are products likely to last? While some suppliers may offer lower prices, if the quality of their product isn't good, a business will end up spending much more on it in the long run. The quality impacts the total cost of ownership, and this is an important metric in strategic sourcing. Data on product quality and longevity is vital.
3. PROCUREMENT AVERAGE CYCLE TIME
How long is it taking for products to get to the business from the time an order is placed? Delays from suppliers may inconvenience a building owner or manager, but it could also end up becoming a health and safety issue. Track supply rates and on-time delivery statistics, especially when evaluating whether to re-up on contracts. You can read more about why this metric matters here.
4. SUPPLIER RELIABILITY
This metric is extremely important because it measures how well suppliers are fulfilling the terms and conditions of the contract. Are deliveries timely? Was the right quantity delivered? Did the right items go to the correct location? If the answer to any of these questions is regularly a “no,” you’ll need to enforce terms and conditions and possibly look elsewhere in the future.
As you can see, strategic sourcing is fueled by data. If you don’t have the data you need to do this kind of detailed strategic analysis, you may want to consider a procurement platform that provides you with the information you need to make your business stronger.
For example, when you become a member of Qmerit Marketplace, you receive access to Avendra’s best-in-class contracts for MRO supplies. That collective buying power means you’ll receive greater savings from some of your everyday suppliers as well as free shipping from most suppliers.