April 18, 2024
7 min read

How Strategic Sourcing Automation Maximizes ROI

Gain the latest market insights on how automated strategic sourcing enhances procurement return on investment.

Automation is everywhere and procurement isn't far behind. Organizations are adopting software tools to streamline strategic sourcing activities and simplify the complexities that come with them. With technology, businesses aim to improve their sourcing capabilities and stay competitive in the ever-changing business landscape.

In this article, we delve into the realm of strategic sourcing. We uncover key market trends that discuss how organizations are maximizing ROI through automation.

Strategic Sourcing Overview

Strategic sourcing serves as the backbone of procurement strategies for organizations worldwide. It represents an approach to purchasing that prioritizes the overall value provided by vendor relationships. Integrated in supply chain management, strategic sourcing focuses on tailored solutions and beneficial partnerships.

At its core, sourcing strategy involves the systematic evaluation of suppliers and negotiation of win-win contracts for goods or services. Essentially, it's a data-driven method for establishing vendor connections and driving the company's bottom line.

Key Components and Processes Involved

The strategic sourcing process is a cycle that extends beyond cost considerations. Here are the key workflows a sourcing strategy typically includes:

  1. Supplier Identification: The initial step involves selecting potential suppliers based on project categories, reliability, and cost-effectiveness criteria.
  2. Supplier Evaluation and Selection: Predefined suppliers they undergo a second round of evaluation. This stage involves accessing quality standards, financial stability, past performance, regulations compliance, and more.
  3. RFx Process & Negotiation: Negotiating favorable terms with selected suppliers is crucial for achieving cost savings. This phase involves defining contractual obligations, pricing structures, delivery schedules, and other terms to ensure mutual benefit.
  4. Performance Monitoring: Continuous monitoring of vendor performance is essential to uphold agreements and quality standards. To maintain a productive supplier network, companies continuously track performance metrics like on-time delivery, product quality, and satisfaction.

The former steps often require accurate manual market research, while the latter ones are increasingly automated to save procurement teams time. However, time savings are just the tip of iceberg.

Strategic Sourcing: Market Insights

Let's explore why digital tools are increasingly used in strategic planning and how they are transforming the sourcing landscape.

Current Market State

According to a recent Deloitte survey the breadth of procurement’s “service portfolio” is expanding, but its stakeholder-facing performance seems to be declining, particularly in terms of savings.

In response to the challenge, Chief Procurement Officers need to reevaluate their strategies to improve supplier resilience and maintain a competitive advantage. Thus, top-performing procurement teams, called "Orchestrators of Value" by Deloitte, are placing a great emphasis on supplier performance, supply market intelligence, and e-sourcing tools:

supplier resiliency investment focus

Another survey by KPMG reveals the extent to which various technologies are integrated into the strategic sourcing process:

technology integration into strategic sourcing

Above that, Gartner predicts that AI technologies will completely change the industry in the coming years. They anticipate that by 2026, about 20% of organizations will rely on virtual assistants and chatbots for internal and vendor interactions. Additionally, they predict that by 2027 a significant "40% of sourcing events will be executed by non-procurement staff".

Main Factors Driving Strategic Sourcing Automation

As evident from market surveys, there is a growing adoption of software tools for strategic sourcing. Here are the key drivers fueling this trend:

  • Increased Visibility into Sourcing Projects: eSourcing platforms generate real-time and historical data on spending activities and supplier performance.
  • Management of Key Spend Categories: Automation of strategic sourcing enables clear spend categorizing across projects and departments.
  • Supply Chain Risk Management: Sourcing automation empowers teams to track the quantitative and qualitative performance of suppliers, make comparisons, establish long-term supplier relationships, and mitigate possible disruptions.
  • High Accountability while Executing Sourcing Projects: an eSourcing platform showcases the workflow of sourcing activities and corresponding stakeholders.

Ultimately, eSourcing not only facilitates finding the right suppliers but also empowers various business units to collaborate on sourcing operations. This is crucial as each department often has its own unique set of sourcing requirements. Online platforms enable procurement professionals to source suppliers within their unique bounds of procurement and compliance rules.

Role of RFQs & eAuctions

RFQs (Request for Quotation) and eAuctions are the two tools that work together for efficient supplier selection and terms negotiation.

RFQs enable organizations to solicit bids from potential suppliers by providing detailed specifications and preset criteria. With RFQ management software, the bidding process becomes transparent, while companies receive bids from a wide range of vendors.

Similarly, eAuctions streamline strategic sourcing by providing a digital platform for real-time bidding. eAuctions eliminate the need for manual bid processing and save time on endless emails back & forth.

eAuction tools empower sourcing teams to easily compare bids, filter them by the best prices, or make custom selections. Finally, eAuctions encourage suppliers to submit their best offers, driving substantial cost savings for buyers.

Autonomous Strategic Sourcing: ROI Potential

Adopting tools for strategic sourcing presents notable return on investment (ROI) opportunities in procurement. With web-based platforms and technologies, businesses streamline their supplier relationship management, reduce costs, and drive operational efficiencies.

Here are some valuable findings from industry sources:

  • A McKinsey & Company survey of 130 organizations reveals that companies engaging in regular collaborations with suppliers "demonstrate higher growth, lower operating costs, and greater profitability than their industry peers." So-called "leaders in supplier development" tend to experience twice the growth rate. While supplier collaboration may be challenging, investing in software thoughtfully and building value-based partnerships are key steps toward stable profit margins.
  • According to Gartner, 72% of sourcing and procurement leaders aim to deliver value to their organization by optimizing the total cost of ownership. This entails negotiating better pricing conditions with the supplier base, improving compliance with policies and contract terms, and creating shared partnerships with strategic suppliers. In this case, procurement software providing RFQ and eAuction capabilities becomes an invaluable asset to invest in.
  • Deloitte highlights the impact of digital procurement and strategic sourcing solutions, which results in higher productivity with supply bases, prices, and costs all visible. This visibility enables professionals to reach transparent agreements with high-value suppliers, driving better prices.
  • Procurement expert Jacob Gorm Larsen, the author of "A Practical Guide to E-Auctions", suggests that online auctions save up to 20% of company spending while accelerating negotiations by up to 40%.
  • A study conducted by Aberdeen Group revealed that RFQ management software increases supplier compliance by up to 30%.

Though the statistics varies from source to source, one thing remains clear: eSourcing is a game-changer when implemented wisely.

Tips for Leveraging Technology

To reap the benefits of strategic sourcing automation, organizations need a clear and consistent approach. To help you avoid chaos and mismanagement, we at Team Procure have some valuable tips to share:

tips for strategic sourcing automation
  1. Standardize Processes: Establish standardized workflows for eSourcing activities to maximize efficiency. Define clear guidelines for supplier identification, evaluation, negotiation, and contract management within the platform.
  2. Engage Stakeholders Early: Involve procurement professionals, finance teams, and business units early in the process. Collaborate closely with them to understand their requirements and address any concerns.
  3. Start Small: Begin your journey with less complex sourcing projects to test the platform and build confidence within your team. Gradually scale up to larger and more strategic sourcing initiatives. This helps with smoother implementation and reduces the risk of overwhelm.
  4. Stay Updated and Innovate: Keep up with the latest tech advancements in the strategic sourcing area. Embrace innovation and be willing to adapt your technology strategy to take your sourcing to the next level.

Available Software Solutions

There are numerous software solutions available in the market to support strategic sourcing initiatives. Some of the flexible and affordable options include:

Team Procure

Team Procure provides a user-friendly cloud-based platform with a variety of tools to upgrade the entire source-to-pay process. Key capabilities for strategic sourcing operations include:

  • Managing Requests for Quotation
  • Approval workflows
  • Scheduled auctions
  • Bid comparison through an evaluation matrix
  • RFQ conversion to purchase orders in a button click
  • Contract management
  • Vendor management
  • Supplier performance evaluation through scorecards and tags
e-auctions and rfq for strategic sourcing

Bonfire

Bonfire, a solution from Euna Solutions Brand, offers RFx management, bid evaluation, and supplier performance tracking features.

Promena

Promena offers eSourcing and eProcurement solutions, including tools for supplier selection, negotiation, and contract management.

ProcurePort

The company provides a procurement platform for managing reverse auctions, RFx processes, and purchasing.

Are You Ready To Transform Your Strategic Sourcing?

Many companies are now using eSourcing tools to negotiate better deals with suppliers and optimize their overall procurement expenses. With the ability to access a larger pool of vendors and track their performance, companies are able to improve the quality of their purchasing and make more informed decisions.

Team Procure is at the forefront of this movement, providing a platform designed for businesses across manufacturing, construction, and other industries.

To witness the transformative opportunities we offer, schedule a personalized demo today. Get a free tour of how our software solutions elevate strategic sourcing and get access to a free trial!

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