Sourcing new suppliers is for life, not just for emergencies

As anyone who works in procurement knows, the last few years have been nothing short of a rolling dumpster fire – the pandemic, wars with no end in sight, geopolitical tensions, havoc wreaked by climate change... the list of catastrophes goes on and on.

If you’re tired of constantly reacting on the fly to supply chain disruptions, unexpected costs, or quality issues with your suppliers, it’s time to make the change towards proactive, rather than reactive procurement.

In this white paper, we examine both approaches, the advantages proactive procurement can bring to an organization, and 7 steps to get you started on your journey. So, hold on tight – it’s time for you to take control of your procurement strategy!

Traditional supplier sourcing

Traditionally, organizations have relied on a reactive purchasing approach, meaning that they respond to immediate procurement needs as they happen. This approach involves making spurof-the-moment decisions in response to urgent requirements or unexpected events, with the main focus being on acquiring supplies quickly and cheaply, often without in-depth planning or consideration of the long-term consequences.

However, in recent times, companies have started to recognize proactive procurement as a way to help prepare for uncertainties and to manage risks. There are several good reasons for this, which we’ll explore in more detail below.

Reactive

• Production disruptions

• Delivery dates missed

• Quality defects

• Negative customer feedback

• Changes in make/buy decisions

Disadvantages of reactive supplier sourcing

The main drivers behind an organization using reactive supplier sourcing include supply disruptions, missed delivery dates, quality defects, and short-term improvements. The prioritization of suppliers is problem driven, with a lack of strategic planning and foresight. For these reasons, reactive supplier sourcing can lead to the following disadvantages:

Higher costs:

Reactive procurement frequently results in increased costs as it reduces negotiating leverage and comparison shopping. When procurement decisions are made reactively, organizations may lose out on opportunities to secure bulk discounts, carry out comprehensive cost assessments, and negotiate more favorable contract terms. Without long-term planning, organizations are unable to streamline their procurement processes and realize potential cost savings.

Supply chain disruptions: If companies only respond to urgent requirements without evaluating potential risks or alternative options, they become susceptible to disruptions such as shortages, delays, or quality issues.

Poor supplier relationships:

Reactive purchasing often focuses on short-term, transactional interactions with suppliers. This approach can lead to missed chances for strategic partnerships and preferential treatment, decreased supplier reliability, and limited access to supplier innovations. Failure to nurture strong supplier relationships can cause organizations to miss out on value-added gains and joint opportunities.

Inefficiencies in inventory management:

Without proactive planning and accurate demand forecasting, organizations may end up with either excess stock that ties up capital, or face shortfalls that disrupt operations.

The case for proactive supplier sourcing

Taking a proactive approach is the best procurement strategy for your organization. In this way, you can stay ahead of the game and foresee any likely problems or challenges that may arise during the procurement process and beyond - affecting every aspect of an organization, including new product development. This approach to supplier challenges focuses on optimal resource allocation and prioritizing supplier engagement, innovation, and collaboration, resulting in continuous, forward-looking improvements that drive long-term competitive advantage.

Proactive

• Supply chain optimization

• Continuous improvements

• Value-added collaboration

• Technology development

• Seek competitive advantage

Advantages of proactive supplier sourcing

The key drivers for an organization to adopt a proactive supplier sourcing strategy include supply chain optimization, continuous improvements, value-added collaboration and innovation, technology development, and gaining a competitive advantage. A proactive approach to supply chain management can help you mitigate threats, ensure business continuity, and prevent your organization from being caught unawares by unforeseen crisis events. We take a more detailed look at some of the benefits of proactive supplier sourcing here:

Saving costs: By making use of market intelligence, such as knowing exactly who the alternatives are to existing suppliers and what they can offer in terms of, for example, new technologies, shorter lead times, or better pricing, businesses can obtain more competitive conditions and advantageous terms. This also puts procurement in a much stronger position when negotiating with existing suppliers. Furthermore, taking a proactive approach helps mitigate the risks related to operational failures, noncompliance, and brand reputation, ultimately leading to further cost reductions.

Fostering innovation: The proactive procurement approach also reaches beyond conventional cost-saving strategies by seeking opportunities for innovation and value creation. By involving suppliers early in the product development process, procurement teams can tap into their expertise, encourage collaboration, and help bring new and better products or services to market faster.

Working with only the best-fit suppliers: In a reactionary situation, organizations are often forced to work with suppliers out of

sheer desperation. However, by adopting a proactive approach, procurement can cherrypick only the best-fit, most competitive suppliers to work with. By gaining insight into suppliers’ capabilities, capacity, and market dynamics, businesses can choose the right partners and collaborate effectively to enhance performance, improve efficiency, and prevent disagreements or underperformance.

Evaluating supplier performance: Proactive procurement requires ongoing performance monitoring and assessment. By regularly tracking supplier performance metrics, businesses can pinpoint areas for improvement, close performance gaps, and participate in supplier development initiatives. This approach strengthens longterm relationships, encourages innovation, and enhances value creation.

In short, suppliers become strategic partners, working closely with organizations to achieve shared objectives and drive mutual success. These relationships are based on trust, open lines of communication, and knowledge sharing, leading to enhanced supplier performance and responsiveness.

7 steps to proactive procurement

The proactive procurement process should be tailored to the specific needs of an organization, but the following general steps can be used to guide you on your journey:

Evaluate processes and spending patterns: Begin by examining internal processes, product categories, and spending patterns. Think about which departments are involved, the quantities required, their locations, and the procurement methods currently in use.

Analyze the market and create a supplier portfolio: Analyze the supply market and build a supplier portfolio. Focus on identifying risks and opportunities, taking into account all relevant costs, from raw materials to transportation.

Develop a cross-functional team: Form a cross-functional team to define the sourcing strategy in alignment with your organization’s objectives. Use your market analysis to assess competitiveness and explore potential alternatives to existing suppliers.

Conduct research and request proposals: Conduct in-depth research on potential suppliers and request proposals based on your specifications, including factors like cost, product quality, certifications, legal terms, and delivery requirements.

Review and compare proposals, negotiate with suppliers: Review and compare the submitted proposals, seeking clarification as needed. Don’t worry if it takes a bit longer than your usual process - proactive procurement often involves multiple rounds of negotiations to ensure that the best supplier is selected.

Integrate suppliers into your existing processes: Once you’ve chosen a supplier, integrate them into your operations. Maintain clear communication and ensure that they understand any changes in your requirements. Develop a plan for efficiently onboarding new suppliers.

Monitor performance on an ongoing basis: Continuously monitor supplier performance to ensure you’re getting maximum value. Adjust your strategic sourcing plan as needed over time to optimize results.

Conclusion

In conclusion, the journey to a successful proactive procurement strategy is a marathon, not a sprint – but, the sooner you get started, the closer you’ll be to the finish line! Proactive procurement has transformed from a reactive function into a key strategic driver of business success. By embracing a forward-thinking mindset, utilizing market insights, and promoting collaboration, organizations can effectively navigate the complexities of today’s business environment. This approach enables businesses to manage risks, foster innovation, strengthen supplier relationships, and realize cost savings. As the landscape continues to evolve, adopting proactive procurement is becoming crucial for organizations striving for long-term success.

Get started on your proactive procurement journey today with Scoutbee’s AI-powered Discovery solution, which can help you find new suppliers in a fraction of the time. Contact us today to request a demodon’t wait until the next disruption hits!