Why there is a shift from traditional procurement to strategic sourcing

(a) from focusing on the unit price to pay more attention to the total cost

Traditional sourcing only focus on the unit price of purchases, ignoring the quality, inventory and other factors on the procurement cost; strategic sourcing is not only concerned about the unit price, but also more concerned about the total cost of purchases and the unit price is considered as part of the total cost. Total cost refers to the unit price from the negotiation with the supplier, to the material delivery, storage, use, transformed into the corresponding products, straight products are accepted by the customer or customer complaints and deal with complaints in the entire process of a variety of costs in the sum of expenditures.

Suppliers who lose something at the negotiating table often recoup their losses under the table. The lowest price, may not be high quality, delivery is not allowed, the service is not good, and ultimately look to be a cost-effective deal but make people suffer, in turn, cost more. Purchasing should not only focus on the unit price, but also on the total cost. There is a good analogy, the unit price is compared to the battle, the total cost of war. Shopping malls such as the battlefield, the war to win the war or the battle? The answer is self-evident. So in the implementation of procurement to the lowest total cost of ownership, and then seek the lowest unit price, which must be established procurement thinking.

(ii) the number of suppliers from many to few or even to a single

Traditional procurement is only concerned about the unit price, who is cheaper to find who to buy, the enterprise's choice is very large, like going to the free market to buy food, so the number of suppliers is large. Traditional procurement tends to be decentralized, while in the strategic sourcing stage emphasizes a high degree of centralized purchasing, with a reduced or even a single number of suppliers. Strategic sourcing encourages the development of a single supplier.

Some may question that a single supplier is too risky, right? Note that single is not unique.

The sole source business has no choice, so of course it is risky. Single supplier means that the enterprise has more than one source of goods, in the process of interacting with multiple suppliers, choose one of the best suppliers, to establish a long-term cooperative relationship, the implementation of a highly centralized purchasing, so that the value of the limited purchasing resources is maximized, but the lowest risk. Purchasing pursues superior quality, low cost, accurate delivery and good service.

From the quality point of view, multiple sources, although we all follow the same quality standards, but the quality of incoming materials is not completely consistent, often unstable, after all, the level of quality management of each supplier there are differences. At the same time, each supplier delivery over to the incoming material inspection, inspection times, inspection costs will increase. And after the development of a single supplier, because it is the best supplier, the quality of the best performance, the quality is more stable, the frequency of inspection and the number of samples can be reduced, or even can be implemented without inspection.

From the cost point of view, multiple sources of procurement decentralization, there is no way to reduce the purchase price, the total cost is usually very high. And after the development of a single supplier, highly centralized procurement, the scale effect is revealed, it is easy to get the price advantage, the total cost is often lower.

From the delivery and service point of view, after the development of a single supplier, because of the implementation of centralized purchasing, the enterprise is likely to be the supplier's large customer or even the largest customer, the supplier in the distribution of production capacity, security of supply, technical support and service, is often a large customer priority, can more fully meet the needs of the enterprise. In this way, the risk is instead reduced.

(C) the relationship with suppliers from short-term transactions to long-term cooperation

Traditional procurement is only concerned about the unit price, the number of suppliers and a large number of suppliers, so the switch of suppliers is very frequent, the relationship between the enterprise and the supplier is short-term transaction type, is a simple buy and sell relationship.

Strategic sourcing, on the other hand, views suppliers as partners and is committed to long-term cooperation. In times of need, suppliers can step up to the plate, sacrificing short-term gains for long-term **** wins. Enterprises can also sign long-term framework agreements with suppliers under the premise of promoting continuous improvement of suppliers, has enabled enterprises to obtain better quality, lower prices, more accurate delivery, better service.

(D) the role of the procurement department from passive implementation to active participation

Traditional procurement as procurement of transactional work, that is, simple order, follow up, inspection, payment and other matters, procurement is only passive implementation of the requirements put forward by the demand department. Strategic Sourcing requires the procurement department to change from passive implementation to active participation.

Strategic sourcing considers sourcing to be a technical job, emphasizes the professionalism of sourcing, and requires the active participation of sourcing, i.e., early involvement. Early involvement is a specialized procurement mechanism with two meanings: first, early involvement in the identification of daily business requirements. However, it usually refers mainly to early involvement in the product development process. Early involvement reflects recognition and respect for the professionalism of procurement.

It is generally recognized that R&D costs only take up 5% of a product's total cost, while the R&D process has determined more than 70% of a product's cost composition. In the product development process, the technical staff is more focused on the perfection of technology, and the cost of relatively little consideration, or less understanding of the procurement department's early involvement can make up for this point. For example, materials with almost the same performance can lead to a big difference in purchasing price because of the common and uncommon use in the market; or different structures can also have a big difference due to the limitation of the technical ability of the market, and the purchasing staff can often provide such information for product development. This, of course, requires us to strengthen the professionalization of procurement staff. The early involvement of the purchasing department broadly also includes the early involvement of suppliers, who can provide more specialized areas of information.