4 Strategic Sourcing Use Cases to Strengthen Your Supply Chain

In an era of supply chain disruptions that have the power to shake up entire industries, strength and resilience across the entire value chain is no longer a good thing, but a survival strategy. For sourcing teams, this means shifting the mindset of supplier selection from a tactical, lowest cost approach to a strategic approach.

While tactical sourcing is a short-term strategy, strategic sourcing is for long-term business goals. Sourcing and procurement professionals operating with a strategic sourcing mindset evaluate the quality, reputation, and service of their suppliers. We also consider how strong partnerships can reduce supply chain risk and improve sustainability. These analyzes and decisions are often optimized with the help of a variety of technologies, including artificial intelligence tools and data analytics platforms. The benefits of strategic sourcing are wide-ranging, from optimizing overall supply chain processes to more cost-effective long-term relationships with partners.

Below is an example of a strategic sourcing use case.

Transparency and Traceability

From fast fashion to fluorite, consumers and stakeholders place importance on product provenance, expecting brands to maintain ethical and responsible sourcing practices. In fact, a 2022 survey found that 73% of consumers said traceability was important. And of that group, 71% will pay a premium. In addition to consumer demands for traceability, new regulations may make it mandatory for some businesses. FDA’s Food Safety Modernization Act (FSMA) Regulation 204 requires food companies that manufacture, process, package, or hold foods listed on the Food Traceability List (FTL) to use traceability. Establish systems and follow new record-keeping requirements.

You can learn more about FSMA preparation here or try our FSMA 204(d) Compliance module for free.

Meeting responsible sourcing requirements requires strategic sourcing tactics and technologies that enable transparency and traceability. Blockchain-based solutions can be leveraged to build a trusted ecosystem of suppliers and partners. how? An immutable blockchain ledger authenticates a product’s origin and journey through the value chain.

For example, Antonello Produce wanted to provide customers with food they could trust. The company used IBM Food Trust® solutions to combine produce grown by agricultural partners with blockchain-based traceability records. Complete product history is now available via batch or invoice number. Going forward, the Italian company is discussing the potential of in-store kiosks where consumers can see the entire journey of their food by scanning a QR code on the packaging.

In addition to ensuring ethical and responsible sourcing, blockchain-based sourcing capabilities can help ensure high-quality products. Learn how Pietro Coricelli uses IBM FoodTrust to ensure the quality of his “Made in Italy” olive oil.

sustainability

Sustainability comes with traceability and transparency. 60% of CEOs say they already feel pressured to be more transparent about their organization’s sustainability performance.¹ Supply chains often account for more than 90% of greenhouse gas (GHG) emissions. Strategic sourcing through a sustainability lens along with a company’s product and service offerings is another way to reduce overall emissions and advance environmental, social and governance (ESG) goals.²

For example, with sustainable strategic sourcing, companies consider questions such as: Does your manufacturing plant minimize waste and use resources effectively? One way to ensure this is to use primarily recycled materials, as Patagonia does when producing its outdoor recreation clothing. Using recycled polyester reduces the brand’s dependence on petroleum, improves waste utilization and reduces greenhouse gas emissions. Other companies may choose to utilize a type of sourcing called Near-Sourcing. This includes moving sourcing activities closer to where the goods or services are sold, thereby reducing the emissions costs of transporting the products to their final destination.

Organizations can also research each supplier, from the suppliers of raw materials for production to those who provide shipping boxes, to ensure their own sustainability practices are in line. For example, Patagonia requires its supplier base to certify to third-party standards, including Recycled Claim Standard (RCS) and Global Recycling Standard (GRS) certification.^three

Building a viable and sustainable partner ecosystem is complex. Powered by artificial intelligence (AI) and blockchain, the IBM Supply Chain Intelligence Suite compiles supplier data to increase Scope 3 accuracy, improve circularity by reducing waste, and communicate carbon and other ESG impacts to end consumers. It helps.

cut down the money

Choosing the right supplier to meet your long-term business needs often results in agreements with more favorable pricing and payment terms, such as volume pricing and reduced fees. Although this is a cost-cutting strategy for companies, lowering the price of a product or service can give them a competitive advantage by offering better prices to their customers.

Certain types of sourcing minimize costs in different ways. For example, insourcing, the opposite of outsourcing, leverages internal resources that may be less expensive than external resources. In addition to reducing emissions, near sourcing reduces transportation costs and delivery times. And global sourcing allows companies to access more affordable resources in low-cost locations.

Another way to use strategic sourcing methods to reduce costs is through digital transformation, such as automating manual processes. The cost of human error associated with manual processes can be enormous, not to mention the damage it does to trust within customer and supplier relationships. Technology that streamlines and automates transaction and contract management can significantly reduce these errors and accelerate the sourcing process.

Additionally, sourcing and procurement teams can strategically leverage data and intelligence to determine which suppliers will deliver the most value and minimize total cost of service. Solutions like IBM Sterling Fulfillment Optimizer help your teams execute new sourcing decisions in real time to meet fluctuating customer demand. It can also help you optimize transportation costs and service level agreements, and improve inventory management and visibility.

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crisis management

Supply chains are under tremendous stress due to supply, demand, logistics and changing industry environments. Strategic sourcing can help alleviate stress by reducing potential risks associated with supplier relationships.

First, strategically creating a broad ecosystem of high-quality suppliers can limit the potential risks that come with reliance on a single source. A diverse supplier portfolio helps organizations avoid delays, cancellations, and price fluctuations due to outages.

Supply chain risk management (SCRM) software allows organizations to build a network of trusted suppliers with optimized information and complete transparency. This technology can also help reduce the risk of regulatory violations. For example, IBM® Trust Your Manufacturer uses AI to continuously monitor supplier compliance.

Broader technologies, such as supply chain control towers, can also help reduce supplier risk by providing visibility into the entire end-to-end network. They use AI and real-time data to identify the impact of external events, predict potential disruptions, and recommend actions to mitigate the impact.

For some organizations, reducing risk through strategic sourcing means moving toward deglobalization using sourcing strategies such as local sourcing and vertical integration. For example, Apple, Nike, and Tesla have deglobalized their supply chains to reduce dependence on foreign suppliers and gain more control. This can limit the risk of disruption from geopolitical instability and natural disasters to some extent, but reducing risk requires maintaining a balance between local and global suppliers.

strategic sourcing: Getting started

The strategic sourcing process varies depending on the business, industry, region, etc. Here are some general steps for building your own process:

1. goal setting: Identify specific goals and metrics, such as reducing costs, improving quality control, and improving supplier risk management.
2. Analysis of current sourcing activities: Examine historical sourcing and business process data to find areas where inefficient spending can be improved or reduced.
3. market assessment: Look at market research and competitor data before making strategic sourcing decisions to benchmark your position in the market.
4. Screening and supplier selection: Establish a process to evaluate and select helpful potential suppliers using a combination of supplier interviews, requests for proposals (RFPs), requests for quotations (RFQs), and scorecards.
5. Ongoing supplier performance evaluation: Perform regular audits, KPI monitoring, supplier relationship management, and supplier feedback collection.

To learn more about how you can use the power of AI and automation to advance your supply chain management goals, explore the capabilities of IBM Sterling Supply Chain Intelligence Suite and IBM Sterling Order Management.

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^One Sustainability as a catalyst for innovation, IBM Institute for Business Value, January 10, 2022.

² Supply Chain Guidance (link resides outside ibm.com), EPA U.S. Environmental Protection Agency, January 17, 2023.

^three Recycled polyester (link resides outside ibm.com), Patagonia