Strategic sourcing is a vendor management practice that helps you prioritize and strengthen vendor relationships. These processes help you collaborate with your suppliers to meet both of your needs, and that can help you become true business partners, not just two sides of a transaction.

Using strategic sourcing best practices, you can set the stage for successful contract negotiations and purchases by identifying the supplier who can best meet your needs at the beginning of the procurement lifecycle. Here’s what you need to know:

1) Review Your Processes First, Then Choose a Software Tool

The worst thing you can do when choosing a new software tool for your business is to choose the tool before seeing if it will fit your current processes. If it doesn’t fit, you’ll end up changing your business processes in order to make the tool work. It’s much easier to review your business processes first, assess your needs, and then choose the strategic sourcing tool that best fits those needs. You might still have to change your processes a little, but there’s much less potential for upheaval as everyone in the company scrambles to change their workflow processes all at once.

Your procurement leaders need a strategy in order to implement procurement automation. Many processes in procurement can be automated, and by doing so, you can reduce human error, eliminate redundancies, improve workflow efficiency, and generate the data your procurement leaders need in order to make better business decisions. As procurement goes increasingly digital, be prepared to keep pace.

2) Prioritize Collaboration with Suppliers

Vendors and suppliers need something from you as much as you need something from them. By fostering two-way communication with suppliers and vendors, you can help meet their organizational needs and they can help meet yours. This will increase supplier engagement, enhance expectations, and build value. By keeping the relationships with your suppliers healthy and basing them on trust, mutual benefit, collaboration, and mutual problem-solving, you can build lasting relationships with  suppliers who will make the most difference in boosting your reputation, keeping your costs manageable, and minimizing your risks.

3) Keep Supply Chain Management Policies and Processes Up-to-Date

Go over your supply chain management and procurement policies regularly, and update them as needed. Processes should be as transparent as possible, and policies should make sense. Compliance is easier to win when policies are sensible, clear, and realistic. 

Procurement and supply chain management policies should also incorporate risk-mitigation strategies and procedures. For example, digital contract management tools and policies can mitigate much of the risk associated with contract management, since it makes contracts and their terms easy to reference, keep track of, and keep up-to-date. It’s vital to make sure both parties meet their contractual obligations, or you could be leaving money on the table. 

4) Focus on Total Cost of Ownership

When it comes to sourcing new equipment, you can’t just focus on the purchase price. You also have to consider how much it costs to maintain and operate that equipment — the total cost of ownership. It’s the same as if you were to buy a new car, where the costs of insurance, maintenance, repairs, gas, and taxes can make a car unaffordable even if the purchase price isn’t that high. Consider your costs over the entire lifecycle of procuring, consuming, and even eventually disposing of the service, products, or equipment you’re considering procuring. 

5) Do Your Homework on Suppliers

To strategically choose the best vendors for your company, you need to be willing to do your research on potential suppliers when the procurement process begins and continue to keep tabs on them throughout your relationship. Look into a vendor’s experience and history before you begin a relationship with them. Monitor supplier performance and measure performance objectives, and make sure you have a forum for communication and problem-solving available at all times.

Strategic sourcing best practices can do so much to improve your vendor relationships, mitigate procurement-related risks, strengthen your reputation, and help you meet your business goals. Make strategic sourcing a priority for your organization, so that you can make the most of your supplier relationships, to everyone’s benefit.