3 Actionable Ways Sourcing Leaders Can Respond in Dynamic Markets
Originally Published December 20, 2022 — Updated September 12, 2023.
Sourcing and procurement functions are in the midst of an overhaul. “Before the pandemic, we were seeing — in general — costs and capacity were stable,” says Ahmad Jiwani, Director of Product and Segment Marketing (and resident Strategic Sourcing expert) at Coupa.
That’s not the case anymore. With inflationary pressures persisting and availability of critical supplies still in flux, the traditional operating model for procurement functions no longer works. Sourcing leaders need a new approach. But is it possible to quickly respond to these dynamic market changes and actually thrive in them? Jiwani and Greg White, Principal, CMO, & Host of Supply Chain Now, certainly think so. They discussed how sourcing leaders can achieve it in a webinar with Supply Chain Now co-host Scott W. Lutton.
Let’s dive into their tips for driving supply chain value.
Tip 1: Keep a pulse on the market to seize opportunities
At the beginning of 2022, the average cost of a single shipping container with seaborne surcharges hovered around $5,100. Just six months later, prices dropped to $1,100 — a nearly 80% reduction. (In 2023, prices are still far below those peak levels.) By keeping a pulse on market changes like transportation costs, sourcing leaders can take advantage by creating new contracts or renegotiating current ones to lower costs.
“This is extremely important for folks on the sourcing side,” says Jiwani, “especially those who manage transportation as a category because this is the time to really be more opportunistic.”
That means shifting your mindset from going to market for transportation once a year to a quarterly or even a monthly basis. Being flexible and strategic in this way enables sourcing leaders to respond to market changes quickly and drive additional value that otherwise may have been lost.
Tip 2: Balance overall objectives with costs
“We can’t just focus on singular costs anymore,” says White. “Companies are now being held accountable for the performance of their supply chain, the downline. They are being held responsible for the emissions and must report that to their shareholders. It’s based on many facets.”
From reducing carbon emissions to ensuring ethical labor practices, companies must (and should) balance many factors when choosing their suppliers. Identifying risks and bringing transparency across the entire supply chain process is more important than ever.
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AI-driven supplier risk assessments and collaborative sourcing are valuable strategies to help achieve this. With AI-driven risk mitigation, sourcing can identify and pre-vet suppliers based on several criteria, like supplier diversity or emissions, which is not possible with traditional sourcing methods. And by creating partnerships with suppliers and giving them the option to define alternative inputs such as payment, delivery times, discounts, or bundles, both parties can create win-win situations that go beyond traditional cost-savings.
By embracing these strategies, companies not only ensure compliance but may achieve better growth and profitability than their peers, according to McKinsey and Company.
Tip 3: Focus on digital transformation
To successfully implement the tips above, you need the right digital tools. But according to Gartner, about half of companies say they don’t have a clear roadmap for digitizing their supply chains.
“We still tend to see companies, even larger companies, that are still highly manual using spreadsheets,” says Jiwani. “But the sourcing function is becoming more complex.”
Spreadsheets alone can’t handle the sheer amount of real-time data required to source in today’s market environment. Not to mention the need for third-party risk tools to meet increasing regulatory standards.
“You’re constantly doing this balancing act. Cost, reliability, ethics, and speed are all things you need to consider in your supply chain. Just those four categories have a bunch of subcategories in them, too,” says White. “It becomes impossible for the human mind to do alone. It takes technology to do that.”
When companies embrace digital technology, they’re able to create supplier scoring systems and bidding processes that are repeatable and scalable — elements needed to stay competitive in a fast-paced market.
Strategic sourcing in today’s dynamic market
Both Jiwani and White agree this is one of the toughest environments facing sourcing and procurement leaders, but there are opportunities to use the market to your advantage.
“Sourcing can be agile and focus on speed of execution with the right processes and digital tools,” says Jiwani. “In addition, the right criteria companies use to make effective decisions — in terms of looking at the supplier mix, using supplier-led innovation, or maximizing spend on contract with the right suppliers — those are what’s going to lead to business continuity and resilience.”