Sourcing and procurement transformation has been an important issue for some time, especially as many organizations grapple with legacy processes that are no longer meeting modern expectations and challenges.
When it boils down to it, a transformation implies that you are improving the sourcing and procurement process by implementing changes that involve internal practices, resource allocation, stakeholders, and enabling technology all at the same time.
There are multiple drivers for sourcing's transformation, ranging from data-driven business objectives to the expanding scope of technology disruptors such as Artificial Intelligence. Successfully implementing this transformation can lead to cost savings, improved supplier relationships, enhanced agility, and a competitive advantage in the market. However, it requires careful planning, change management, and a commitment to continuous improvement.
This blog will go into detail on sourcing and procurement procedures, why they are important to businesses, and methods for effective sourcing transformation.
Topics to be explored include:
- What is sourcing transformation?
- The difference between sourcing and procurement
- Creating value for your business through procurement transformation
- The sourcing transformation process
- Transformation of procurement and sourcing - how to make it successful
What is sourcing transformation?
Sourcing transformation is the complete and strategic overhaul of an organization's sourcing methods, practices, and strategies with the goal of making significant improvements in efficiency, cost savings, supplier relationships, and total business value. It involves a structured reevaluation and rethinking of how goods and services are bought.
This includes the selection of suppliers, negotiations, procurement processes, and the use of new technology. Sourcing transformation aims to improve sourcing processes, make it easier for buyers and suppliers to work together, reduce risk, and use new methods to stay competitive in a business landscape that is constantly changing.
The difference between sourcing and procurement
Although the terms are sometimes used interchangeably (with purchase thrown in for good measure), sourcing and procurement have distinct meanings and activities in the context of supply chain management and company operations.
While procurement encompasses the entire procedure of procuring products, materials, or services from suppliers, sourcing specifically refers to the process of identifying and choosing suppliers who can offer the goods, materials, or services that a company needs.
In essence, while sourcing sets the strategic direction by selecting the right suppliers, procurement translates this strategy into practical actions to secure the necessary resources for the organization's operations.
Creating value for your business with sourcing transformation
Sourcing transformation efforts may involve multiple aspects of the procurement function or focus on specific areas of procurement, such as supplier relationship management, spend analytics, or strategic sourcing. But all should align to support business and financial goals.
When done right, sourcing transformation serves as a catalyst for unlocking a myriad of business advantages that can result in an interconnected web of value, such as:
Cost savings: One of the most immediate and tangible outcomes of sourcing transformation is cost reduction. A successful sourcing transformation should enable companies to identify cost-effective suppliers, negotiate better contracts, and streamline procurement processes, leading to greater savings.
Heightened efficiency: True sourcing transformation empowers organizations to streamline their procurement workflows. Automated processes, data-driven insights, and real-time collaboration tools lead to streamlined operations, shorter cycle times, and reduced manual errors, all of which contribute to smoother running sourcing processes.
Enhanced relationships: A robust sourcing transformation strategy fosters stronger supplier relationships. It can facilitate better communication, improve collaboration, and supplier performance, all of which help buyers build partnerships with suppliers based on trust and mutual benefits.
Risk mitigation: A transformation that focuses on a data-driven approach to sourcing processes enhances risk management by providing real-time insights into market trends and potential disruptions. This empowers businesses to make informed decisions and proactively address supply chain vulnerabilities.
Agility and adaptability: The ability to swiftly adapt to changing market conditions is vital in today's dynamic business environment, but it is not always achievable with legacy tools and systems. Sourcing transformation equips companies with the agility to respond effectively to market shifts, regulatory changes, and emerging opportunities within the supply chain.
Strategic focus: By automating routine tasks and leveraging AI-driven insights, sourcing transformation that includes optimization liberates procurement professionals to focus on strategic initiatives, foster innovation, and ultimately drive long-term business growth.
Denmark-based manufacturing company KK Wind Solutions originally had their sourcing process setup in Microsoft Excel, but found it to be inefficient and lacking transparency.
By adopting Keelvar’s technology during a sourcing transformation process, the system’s centralized and transparent data allowed KK Wind Solutions to monitor progress and performance in real-time, making data the key metric to measure the productivity and performance of supplier negotiations. Read the full success story
The sourcing transformation process
Embracing the three pillars of transformation—people, process, and technology—is essential for a successful sourcing transformation.
Effective sourcing transformation begins with strong leadership and a supportive organizational culture. Leaders need to champion the transformation, set a clear vision, and motivate teams to embrace change in order to allow for widespread adoption of new processes and technologies. It is vital to get c-suite buy-in by effectively communicating the benefits of the transformation, and considering how the changes might positively or negatively impact your supplier relationships.
Before embarking on any kind of transformation, it's essential to map out your existing sourcing strategy, identifying bottlenecks, inefficiencies, and opportunities for improvement. This will enable you to identify the KPIs that will measure the success of your sourcing transformation, and help you pinpoint the areas that require the most attention to save valuable time when deciding the scope of the transformation your business needs.
Leveraging innovative tools to enhance the efficiency, accuracy, and strategic impact of sourcing activities can make all the difference in determining whether you have achieved a true transformation with meaningful enhancements, or a cosmetic re-branding of what’s always been done. Swapping sourcing technology for a different tool that’s essentially the same isn’t very transformative, especially if the new technology doesn’t have a strong future roadmap.
Steps for successful sourcing transformation
A successful sourcing transformation involves a strategic and well-planned process to improve the efficiency, effectiveness, and overall performance of the procurement function. The steps include:
1. Assess the health of your procurement processes
Take a thorough evaluation of the current state of your sourcing function, including processes, technology, structure, and talent, to identify any pain points, inefficiencies, and areas for improvement. In this way, you will be able to align the transformation with overall strategic goals and objectives.
2. Define the value and benefits of the transformation
When putting together a business case to advocate for a sourcing transformation, you’re principally looking to answer one or both of these questions: What problem will this solve? What value and benefits will we gain? These could include more process consistency, cost savings, and a team better equipped to handle risks.
3.Understand the reach of the transformation
From sourcing processes to supplier relations, the transformation should optimize each step in order to bring maximum value to the entire organization.
4. Consider the role of technology in future proofing your transformation
If you need to create more value in your sourcing strategy as part of your transformation, you may be re-evaluating your current eRFP and sourcing tools, which can no longer keep up as business needs evolve and new challenges emerge.
5. Develop a roadmap for success
Your roadmap for procurement transformation needs a deliberate and well-paced approach to ensure maximum success – particularly when it includes switching from a standard e-sourcing tool to another.
When it comes to sourcing transformation, best-of-breed sourcing solutions, such as Sourcing Optimization and Autonomous Sourcing from Keelvar, can rapidly drive value through modernization and scalability. Not only does sourcing optimization software afford benefits that are simply not possible using legacy systems, but it also has possibly the highest ROI of any SaaS solution that a procurement team can purchase.
Keelvar has proven experience in making that transition as smooth as possible; you can choose to start your sourcing transformation small and first learn to apply the basics, and our expert customer success and professional services team can help you with broader rollouts too.