At its core, procurement is a relatively simple concept: Companies need to build their products, and in order to do so, they must obtain the necessary parts and tools. The actual process of sourcing these materials, however, is much more complex. In the crowded contemporary business landscape, firms have an almost inexhaustible list of options to choose from when it comes to suppliers for a given part.
Furthermore, the expenditures involved in procurement go far beyond the direct cost of the resource in question. Transporting goods across international borders can be expensive, but labor costs overseas may make offshoring a viable option. Meanwhile, demand for sustainable products among consumers is increasing, and this means that firms often need to spend more and consider a wider range of factors in order to give customers what they want.
Given these complexities, it's natural that companies are looking for strategic sourcing methods that allow them to operate with optimal levels of agility and efficiency. Here are two ways in which chief procurement officers can creatively reconsider their distribution and production partnerships.
1. Segment the supplier network
Technologies such as big data analytics are allowing companies to adopt more targeted decision-making practices, moving away from broad-stroke approaches to marketing, sales and other key operations and instead creating more personalized experiences for customers, leads and end-users. These same techniques can be adapted to procurement strategies.
In a column for EBN, Avnet's Senior Vice President of Global Supply Chain and Strategic Accounts Lynn Torrel pointed out the benefits of a segmented supply chain management model. Essentially, this approach sets unique goals and methods for each sub-area of the supplier network. The lines to determine segments may be drawn along geographic borders, supplier type or other factors. Though the technique may appear to introduce complexities, it actually helps simplify procurement.
"Through segmentation, OEMs can better align their resources so that they are not, for example, spending money delivering commodity products ahead of demand or holding up production waiting for custom parts to arrive with a consolidated shipment of standard products from overseas," Torrel wrote.
2. Work alongside competitors
Firms might also consider making strategic partnerships with competitors for shared procurement initiatives. According to Supply Management, NH Hotels Chief Procurement Officer Salvador Serra de Paz recently discussed his firm's joint sourcing venture with Husa Hotels at the recent Procurement Transformation Summit in London. The partnership allowed them to create a centralized channel for purchasing cleaning supplies, food, beverages and other items.
The key to developing a sourcing strategy that is both creative and effective is to ensure that it suits the company's specific operational needs.