Strategic Sourcing – Is it the Same for Large and Small Companies?

 

Is strategic sourcing the same for large and small companies?
This is an interesting question based on my experience. I would suggest that it is the same fundamentally even if the tools that are available aren’t always designed for both markets. Larger companies will have more manpower and expertise to execute defined strategies and goals.

  • CPOs and CFOs of larger organizations usually have clearly defined goals for sourcing and procurement. This is typically a function of the number of people that could be involved in a procurement event or decision.
  • Larger organizations need written policies and procedures to follow with purchase authority levels defined to avoid chaos.

Smaller companies will typically have a much smaller group of people with the authorization to make purchasing decisions.

  • In these companies there may be some rules of thumb that are used and they may or may not be written down.
  • There rules are usually based on the dollars being spent with all purchases over certain thresholds needing the approval of the CEO or President.
  • In a smaller company, if someone is in doubt “check with the boss”. So even if the approval limits might be a bit more fluid in a smaller company there are still guidelines.

Many large organizations have a goal of minimizing risk in the procurement function. As an example, on time delivery of goods and services would certainly seem to be a given.

  • The on time window might be a lot larger in some situations. Certainly the airlines have plenty of cushion to achieve an on time arrival.
  • For key materials it is necessary to have contingency plans in place if there is dependence on one or a small number of suppliers. Larger companies have the luxury of setting up alternative suppliers. Those suppliers will be motivated to be ready because of the opportunity to become the primary supplier.

Smaller companies aren’t likely to have the economic clout to have multiple suppliers at their beck and call.

  • They will normally have a big problem if their primary supplier can’t deliver. This is because any backup supplier will need to gear up to service them. This may mean several weeks or even a month without enough materials to meet demand.

Regardless of the size of the company, loss of a key supplier will have an adverse economic impact and it could cause irreversible financial harm. Large or small, having the people in place and armed with the right tools is critical to make goal achievement a reality.
How do you know if your organization has the right tools to achieve their procurement goals?
If you are part of a large organization then the one thing I would look at is how the systems are being used. Do sourcing teams make extensive use of offline tools like Excel, Word, Google Docs and email to manage the RFP process? Are they more comfortable with these tools even if it takes a lot longer to manage each event? These are warning signs that the primary systems aren’t meeting the organization’s needs.
If you are part of a smaller organization I would look at the process to manage purchases. The same offline tools are very likely to be used simply because of familiarity. Smaller companies may not even be aware of sourcing solutions that are available that can provide greater control, efficiency and knowledge accumulation.
Isn’t it interesting that the use of standalone tools has a negative impact regardless of the type of organization?
Every company has to get smarter and make better use of resources. Seeking out organizations that have found better ways to do things, even if they only serve one critical need is smart business.
Action Step: What would be a good next step if these issues resonate with you?
EC Sourcing Group is one of the companies I represent because they help procurement teams deliver quantifiable cost and time savings. If you want to know how, I invite you to request a demo or 30 minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at (973) 718-7071 x875. The call will be forwarded to my mobile phone if I am not in my office which is pretty likely.
Next week I will continue on this same theme so your organization can improve your bottom line.
If you would like to know more ways to reduce costs without changing the way you do business simply give me a call or send me an email with your contact information and the best time to reach you.
You Won’t Drift to Success©
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Until Next Time, I Wish You Great Success in Your Business and in Your Life
Mike Jeffries