Improving sourcing decisions

Whitepaper:  Improving sourcing decisions – not only in turbulent times

by Ronald W. Bogaschewsky

The Corona crises poses critical threats to many Supply Chains. As we have to do our best to get things running again, we should also start thinking about how we make decisions about our sourcing strategies and how to pick new suppliers. Be aware, that the Corona pandemic might last for a while and that this will be not the last critical disruption of our supply chains.

Here are recommendations on how to improve things in Purchasing & SCM on its way to a world-class business function. There is a wide range of aspects to be considered when transforming a conventional Purchasing &SCM department into a value-adding function that can be considered as being really strategic for the company. As we know from resource-based theory (see Prahalad and Hamel, 1990) a resource (e.g. the Purchasing function) can be seen as strategic when it generates customer value, when the way it performs its activities and processes is hard to imitate by others, when there is no substitute for it (e.g. a software or platform), when the applied resources to do the job are scarce (hard to get or create) and when the way they fulfill their tasks is company-specific. It is very clear that most operational processes that can be standardized and automatically performed by applying software, are not what makes Purchasing & SCM a strategic function.

We will therefore not address operational issues here, such as the undisputed necessity to implement highly efficient, standardized, transparent processes for ordering and payment or for tendering. There is abundant availability of good e-tools for these purposes and anybody should know by now that without highly automated processes in these areas, Purchasing & SCM will not be able to focus on strategic and value-adding tasks (see www.cfsm.de for reports on the status of e-procurement tools and their application in practice). Instead we will focus on some of the highly value-adding, strategic tasks that are critical to prove that Purchasing & SCM can be a core competence of the company. We will therefore discuss tasks and activities that are critical to gain competitive advantage when they are carried out properly, meaning in a highly professional way. Today this always includes the application of leading software solutions that are already available.

In this first part of a series of whitepapers about the abovementioned issues we will concentrate on the necessity for and the availability of smart software solutions for supplier scouting, for cost analysis, for sustainabilty and compliance management and for smart negotiation processes.

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