When You Should – and Shouldn’t – Consider Strategic Sourcing

When Strategic Sourcing | Blog | Advanced Purchasing Dynamics

Strategic sourcing is a well-established procurement process designed to achieve durable cost reductions by realigning the supply base. The focus is on translating the organization’s strategy and stakeholder goals into specific commodity objectives that drive sourcing efforts. 

Typically, strategic sourcing is the preferred approach when a company is consolidating sourcing suppliers, pursuing global sourcing, or evaluating make vs. buy. Nearshoring is sometimes an important sourcing strategy for achieving strategic sourcing goals.

The potential pitfalls to strategic sourcing are: 

  • Not a fast process – It typically takes 4-6 months from the time you form your strategic sourcing team kick off the project until you are able to select suppliers. Most commodities require lengthy customer approvals or supplier validation steps before you will start seeing savings, so a 12- to 18-month time to savings is not uncommon. 
  • Requires engagement – A successful strategic sourcing project will require the sustained engagement of those on your team with deep knowledge on the target commodity. Since this knowledge is typically spread across various functions, keeping everyone engaged for a lengthy project can be a challenge. 
  • Change management – There are three main ingredients for a successful strategic sourcing initiative: identifying what the organization needs from suppliers, identifying suppliers who can meet those needs (and are competitive on costs), and implementing change. The importance of change management is often underestimated, leading to a failure to implement savings opportunities. 
Successful Sourcing | Blog | Advanced Purchasing Dynamics
  • $5.2M savings identified on coiled aluminum and stainless steel  

A $2B insulation and commercial roofing manufacturer needed to consolidate suppliers after adding too many to deal with post-covid shortages and needed. APD identified a16% savings opportunity for three plants after a multi-round market test.   

  • $2M savings identified on stampings 

A $150M valvetrain component supplier was under pressure to improve profitability.  APD identified a 15% savings opportunity for two plants in a make vs. buy study. 

  • $1.8M savings identified on wire harnesses  

A $1B commercial truck manufacturer saw an opportunity to consolidate wire harness sourcing across five divisions. APD identified a 23% savings opportunity after a multi-round market test. 

  • $1.4M savings identified on MRO items 

A $4B electric steering supplier was unhappy with their MRO commodity manager due to increasing costs and inventory levels. APD identified a 5.5% savings opportunity and recommended sourcing for 14 MRO categories.

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