Prime Advantage Blog

Strategic Sourcing in the New Economy

Joe Ptak on Oct 29, 2015 10:06:49 AM

"The procurement world has changed."

So said Karl B. Manrodt, Ph.D. of Logistics and Transportation at Georgia Southern University, at the Prime Advantage 2015 Fall Conference, held in Glendale, AZ, last week. Dr. Manrodt led a stirring discussion with Prime Advantage Members and Endorsed Suppliers on harnessing the potential of various sourcing models in modern procurement. Here are some of the key takeaways from his presentation:

  • Strategic Sourcing in the New Economy

    Manufacturers today are looking at their suppliers differently in an effort to elevate their procurement strategies. They are taking a more collaborative approach and do not consider their suppliers merely a representation of a price for a material anymore.

  • Many popular strategies have grown obsolete for modern procurement. It is now essential to make a shift from "buying" to "architecting" in your supplier relationship management to handle the dynamic and complex challenges of today.

  • Power imbalance will stymy a collaborative environment, so it is important to seek balance with your suppliers. Consolidating suppliers as you grow can create leverage as you become an even bigger and more important customer. Your approach in this circumstance will keep the collaborative doors open.

  • Diversification is critical for generating balance in your supply chain. As you consolidate you must still have enough variation in suppliers you are relying on so that your business is not entirely tied to a faction of circumstances that you cannot control.

  • Every relationship is different, but the one common denominator is that trust is vital to creating long-term partnerships with suppliers and win-win results. Trust doesn’t just bring peace of mind; it will also bring reduced supply chain risk and other benefits for your business over time.

  • The sourcing model you select should reflect your desired level of dependency and risk. What's right for your business might not be right for everyone. The strategy you choose needs to be in line with each individual element that makes up your company's values and mission.

  • Organizations must consider more flexible interpersonal contracts for strategic partnerships so as to produce increased social cooperation. If you leave money on the table, the goodwill you create will buy you support down the road when you need it most.

  • The best relationships are hybrid in nature; using total systems thinking to combine a relational approach with an outcome based economic model. The relational portion determines how you will formally control or influence your supply source. The economic aspect dictates how you will manage the financial side of the relationship.

If you stumble on these points, you may create friction with your supplier that's riddled with perverse incentives. But if you make an ongoing effort to adhere to them, you will produce an environment of mutual dependency that includes endless mutual value as well.

Download the 2015 Purchasing and Manufacturing Survey from Prime Advantage

Topics: Strategic Sourcing, Procurement

Joe Ptak

Posted by Joe Ptak

Joe Ptak is the Manager of Marketing Communications for Prime Advantage. Joe is a perception engineer who contemplates the meaning of life every time he stares at a spreadsheet for too long and has never, Ever, taken an elevator to the 2nd floor.

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