The Shift From Traditional Procurement to Strategic Sourcing

• Tactical Sourcing Vs. Strategic Sourcing
• Data as the Foundation for Strategic Procurement
• Best Practices for Procurement Data

Procurement leaders have a multifaceted job. CPOs often struggle to gain the needed buy in from stakeholders , making it difficult for them to truly provide the value they are capable of. So often, finance and other C-Suite leaders focus myopically on cost reduction, but strategic procurement requires alignment with broader business goals, organizational objectives, and long-term supply chain needs. While this is a key concern, it is not the only one part of a mature procurement strategy. That’s where procurement strategic sourcing, supplier-focused optimization, and a defined sourcing strategy come into play.

Tactical Sourcing Vs. Strategic Sourcing : How Procurement Strategy Evolves

From a procurement standpoint, tactical sourcing is the short game. Tactical sourcing involves a routine approach where purchasing activities are often reactive and transactional—an approach common in traditional procurement processes. These activities typically focus on immediate buying to ensure organizations have what they need but lack consideration of supplier capability, supplier performance, or supplier risk. Additionally, tactical sourcing typically comprises immediate buying to ensure that organizations have what they need to meet specific needs, but it doesn’t account for a deep understanding of vendor capabilities or larger company goals. Without the visibility and insights provided by strategic procurement software, organizations often remain stuck in this reactive cycle rather than evolving toward a more data-driven, strategic sourcing approach.

Conversely, leaders often view strategic sourcing as the long game. Conversely, leaders often view strategic sourcing as the long game. This maturity stage incorporates supplier relationship management, supplier evaluation, and a proactive strategic sourcing process that aligns with larger organizational goals. Strategic sourcing looks beyond transactional purchasing and incorporates contract management, competitive bidding, sourcing decisions, and supplier partnerships. This involves evaluating vendor capabilities, gaining a deeper understanding of your supplier pipeline, working toward process improvement to deliver higher quality and lower cost, and optimizing purchasing activities for efficiency.

A digital solution is often required to enable these capabilities since procurement teams need full visibility into their supply base, potential suppliers, and overall supply chain management ecosystem. In fact, according to a Hackett study, digital transformation initiatives are expected to grow by 11% in 2021, highlighting the need for an efficient digital solution to support procurement.

But how do you get from tactical to strategic sourcing? Building a roadmap for the transition is truly the difficult part as the business must still maintain continuous operations and strive for excellence in savings, P2P integrity, and other critical areas. Strategic sourcing is a road that many procurement practitioners know they need to travel, but with little understanding of how to get from start to finish. Given a thoughtful approach, it is possible to execute strategic sourcing alongside your current practices. While the journey may not always look the same, one thing is for sure—it’s a road paved with data.

The journey from tactical to strategic sourcing can be a long and arduous one. It is frequently understood that the best approach to sourcing is usually a strategic one to account for all business needs. But how do you go from focusing on immediate needs to surveying long-term plans and outlining your processes to match those business goals? It’s a road that many procurement practitioners know they need to travel but with little understanding of how to get from start to finish.

Why Data Powers the Strategic Sourcing Process and Supplier Evaluation

The roadmap to strategic sourcing involves many elements, but at the core of a successful approach lies data. Data provides the foundation upon which you develop a procurement strategy, optimize sourcing activities, and make informed procurement decisions aligned with organizational objectives. Why is data so important in procurement? 

• Credibility: Modern procurement professionals frequently struggle with gaining organizational trust. With strong data, procurement teams can demonstrate improved supplier performance, validate sourcing decisions, and show measurable progress in procurement efficiency. In fact, the Hackett study listed stakeholder resistance to change as they top hurdle for procurement transformation. With data to support your processes and workflows, it becomes easier to garner that needed stakeholder buy in. With firm data to show your success, you also have a basis for establishing ROI and developing a value statement.
• Transparency: Visibility is vital to the success of a strategic sourcing initiative. In Deloitte’s 2020 Chief Procurement Officer Flash Survey, 90% of participants cited visibility into extended supplier networks as moderate to very low. Transparency helps teams assess supplier relationships, supplier contracts, supplier diversity, and supplier risk while giving finance insight into how sourcing supports broader supply chain management. Adopting a procurement SaaS tool that enables proactive transparency and real-time collaboration can help to support your goals.
• Validation: Data offers hard evidence around savings, supplier scorecards, sourcing decisions, procurement KPIs, and other critical metrics required to justify strategic sourcing initiatives.

Best Practices for Procurement Data to Improve Supplier Performance and Sourcing Decisions

As the foundational element of your strategic sourcing roadmap, your procurement data must be clean, structured, and aligned to the sourcing process. Without accurate data, it becomes difficult to benchmark supplier performance, improve procurement efficiency, or support strategic supplier selection.

Here are some best practices for your procurement data:

• Make sure your data is valid. This enables accurate supplier evaluation, performance tracking, and informed procurement activity planning.
• Enable visibility into your data so stakeholders understand the value of strategic sourcing, ongoing sourcing activities, and supplier partnerships.
• Establish a consistent reporting structure that tracks sourcing metrics, procurement KPIs, and long-term business objectives.
• Select a digital procurement tool that centralizes contract management, competitive bidding, supplier scorecards, and strategic sourcing process workflows so teams can make better decisions.

If you can achieve these things then you are already advancing along the maturity curve and are set on the path to a high-functioning procurement team.