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Sourcing Education

Have You Made Your Material Sourcing Plan?

November 9, 2020

Many companies are content with employing a reactive sourcing strategy. When material sourcing, their procurement team responds to requirements from the business side of the operation as they arise. That’s fine—sourcing professionals have the expertise to deal with this common scenario—but is it the best way to be doing things? That is debatable. 

Actually, it’s not. When you are material sourcing, you will be hard-pressed to track down a sourcing professional who will make a case for choosing reactive over a strategic procurement process. Being constantly in reactive mode is not only incredibly stressful for all involved, but it’s also more expensive. Making the switch to a strategic sourcing strategy and predictive procurement also supports creating an effective material sourcing plan. 

Before diving into that, a quick refresher on the relative merits of reactive sourcing versus creating a material plan has value.

What Are the Benefits of a Material Sourcing Plan?

      • Increased profit due to savings throughout the sourcing process
      • Easier to manage supply risks (through supplier evaluation and proactive risk mitigation or avoidance)
      • Easier to identify opportunities
      • Easier to add value
      • The procurement team is more involved in the organization and potentially has a seat at the table with the c-suite 

Why Should You Avoid a Reactive Sourcing Strategy? 

If we haven’t clarified already, there is no contest here between a material sourcing plan and a reactive sourcing strategy. Strategic sourcing and predictive procurement wins over reactive sourcing every time. It’s a superior approach for the business, it leads to better relationships with suppliers (who are able to close deals earlier), and it’s far more rewarding for a company’s sourcing team.

It gets even better. The digital age is taking the concept of strategic sourcing to a new level. Harvard Business Review published an article on just that topic earlier this year, focusing on the advantages offered by next-generation sourcing solutions:

“Next-generation procurement calls for agile decision making. Suppliers are identified based on relevant, timely market intelligence. They are selected based on the best available information, obtained during the strategic sourcing process. Suppliers are managed based on actual performance metrics and changing risk and market dynamics.”

How does one get to this next generation, strategic sourcing Nirvana? According to the HBR article:

“The starting point for a healthy procurement ecosystem lies in creating a world-class data, information, and intelligence strategy that provides visibility into spending decisions, consumption patterns, performance and quality data, supply chain risks, market insights, and intelligence.”

Keep those points in mind. They are precisely the sort of advanced capabilities solutions like the AI-powered Arkestro strategic sourcing software bring to the table. 

Why Make a Material Sourcing Plan?

Now, we’ve made a case for employing a strategic sourcing strategy, but how does that relate to a material sourcing plan? And why is a material sourcing plan so important?

A material sourcing plan is a critical document produced by the procurement team. It’s created as part of the process when a company develops a new product or considers major changes for an existing product. The material sourcing plan is key to ensuring the business units involved can meet their goals. 

The sourcing team will be expected to contribute critical information, including product requirements (broken down into raw materials, components, and equipment needed for production), storage and transportation services, production and delivery dates, key suppliers and strategic partners, and target price.

When a project goes ahead without a material sourcing plan, there are countless ways the project can go sideways. Business units may have a plan that includes their requirements, design, pricing, and marketing strategy, but success can be elusive without a solid material sourcing plan in place. 

The results are often delays, quality control issues, and higher than expected costs. In a worst-case scenario, the lack of a pre-production plan at the sourcing level can result in the project failing altogether.

A Material Sourcing Plan Is Far More Effective with a Strategic Sourcing Strategy 

Consider the challenge of trying to put together a material sourcing plan when your organization is stuck in the rut of a reactive sourcing strategy. The two are all but mutually-exclusive. The saying two steps forward, one step back comes to mind. 

How can you be expected to draw up a realistic, achievable plan when there are so many variables in play, and the go-to sourcing strategy is to be in constant reactive mode? Any material sourcing plan put together under these conditions will be time-intensive, unrealistic, and have a high failure rate. For your procurement team, it is likely to be an exercise in frustration. For the rest of the organization, it is going to raise doubts about the department’s capabilities.

Ultimately, it is going to have the effect of reinforcing the reactive sourcing strategy. The sourcing team will be running around, putting out fires in the aftermath—in other words, reacting.

With a strategic sourcing strategy, the pieces are in place to be able to create an effective, realistic material sourcing plan. As the Harvard Business Review article points out, adopting a solution that offers world-class data and information with insights into key factors like supply chain risks and advanced supply chain management capabilities is the next step. 

This competitive advantage allows a sourcing department to exceed expectations and transform into a strategic partner within the organization involved early in the decision-making process rather than just another business unit. 


What’s the Next Step?

Is your company still stuck in the rut of reactive sourcing and churning out material sourcing plans that are glorified best guesses? Make the switch to a highly effective Predictive Procurement Orchestration platform with Arkestro. Schedule a demo to see how easy it is to create a highly effective material sourcing plan with Arkestro sourcing software.