Strategic Sourcing Evolves Beyond Better Prices

Elevated from its position as merely a point through which money exits the enterprise, the procurement function is quickly becoming a strategic component of corporates in more ways than one. Thanks to digitization, companies can be more calculated on the vendors with whom they choose to work to source better products and more affordable prices.

Yet, as scoutbee Founder and Managing Director Lee Galbraith explained in a recent interview with PYMNTS, product quality and prices are only the tip of the iceberg when it comes to strategic vendor sourcing, and what it means for corporate security, digital transformation journeys and bottom lines.

“Supply chains are more volatile today than ever before,” he explained. “We’re seeing climate, politics and the disruption of business models pressure purchasers. So, when sourcing vendors, trust is a big factor because the stakes are high.”

Indeed, a volatile, uncertain market can mean organizations need to watch their spend closely, and remain financially stable to withstand any market downturns. For procurement teams, that means being smart about spending company cash, and finding the balance between saving money and spending more for higher-quality products and services.

However, that market volatility has also shed light on the importance of vendor selection to mitigate an array of risks beyond spending too much money.

Ongoing trade disputes remain top of mind for some of the largest conglomerates in the world, which are forcing these businesses to redraw trade routes and, in some cases, find new vendors to bypass trade tariffs. A rising focus on the environmental impact of trade has some organizations focusing on vendors with a lower carbon footprint. Growing awareness of cyberattacks and the exposure that third parties can bring has firms placing greater emphasis on data security down their supply chains.

At a macro level, market uncertainties have encouraged corporates to take a closer look at their business partners to understand whether investing in their vendor bases will pay off in the long run. Galbraith said procurers are asking questions like, “What is this vendor’s track record at delivery? What is their relationship with my competitors? Are they viable and sustainable?”

Other industry trends have shifted the buyer-supplier relationship, too, not the least of which is the acceleration of financial and payment technology. Payment terms are a key consideration for both buyer and supplier when considering a new partnership, noted Galbraith, who added that suppliers may feel the need to adapt to customer demands — from payment terms to environmental impact — to secure a contract.

Open Data

One of the financial services trends influencing the procurement space is the rise of Open Banking, and the broader effort within the sector to promote the seamless and secure movement of data. A similar movement is brewing within procurement, as organizations struggle to promote transparency within their supply chains, said Galbraith.

“Data is scattered across supplier-relationship applications, ERP systems, financial systems and into production,” he explained. “This fragmented view prevents procurement [professionals] from being strategic in the way[s] they manage their portfolio[s], and the sourcing of suppliers.”

That lack of visibility makes managing currency vendors, and sourcing new suppliers, a highly manual task that “seriously impede[s] transparency, speed and the ability to drive a more strategic agenda for procurement,” continued Galbraith.

Procurement technologies must be able to integrate into other platforms and obtain data, not only on product details and prices, but on a range of other metrics like certifications, cybersecurity measures and regulatory compliance checks. That data integration can also promote the seamless movement of transactional data — for instance, the submission of purchase orders, the receipt of invoices and the submission of payments from directly within procure-to-pay systems.

Today, however, data remains heavily fragmented and siloed, ramping up the risk of vendor relationships.

“We’ve heard horror stories from customers, where the supplier location and building are fake,” Galbraith recalled, adding that customers have also encountered “outdated websites that prevent current views of certifications, management and compliance.”

“There are real concerns about authenticity, and [the] ability to deliver,” he said.

The shift of procurement from siloed to strategic can open new doors for both buyer and supplier to more seamlessly do business. Deals can be made, money can flow faster, and organizations can promote compliance and ethical operations by having transparent supply chains. As Galbraith explained, much of this can be achieved via data and firms’ ability to link directly into their business partners’ systems, promoting visibility into everything from their vendors’ cybersecurity practices to exposure to trade tariffs.

However, that focus on data integration also introduces new challenges for the procure-to-pay space, particularly in the area of data security and compatibility with other systems. Galbraith acknowledged the shifting nature of the current sourcing and procurement space, and pointed to technology as the answer to these hurdles.

“The disruption that [artificial intelligence] and Big Data will bring won’t throw procurement into turmoil,” he said. “It will enable it to be more strategic, and drive more value.”