Strategic sourcing offers the public sector a guiding hand
Strategic sourcing has become best practice in procurement management and makes good business sense for meeting the State’s ongoing commitment to taxpayers, Estelle van Rooyen, Director of Compliance, Contract Management in Specialist Functions for National Treasury, told SmartProcurement.
Strategic sourcing initiatives have been persued in the private sector for many years, and recently the public sector has begun implementing similar type initiatives.
However, the main difference between private sector and public sector strategic sourcing lies with the implementation of sourcing strategies. Public sector sourcing strategies are largely regulated by legislation such as the PPPFA, Treasury Regulations and BBBEE, said Van Rooyen.
The successful implementation of Strategic Sourcing may lead to an improved understanding of government’s spending patterns that will assist in optimising the budgeting and planning process and enable sourcing practitioners and decision makers to make informed sourcing and supply management decisions. Strategic Sourcing may, furthermore, provide alternative methods to cut cost and improve services and reduce direct procurement and administrative costs, added Van Rooyen.
Strategic sourcing can be defined in a number of ways. A good start to understanding strategic sourcing is to first identify what it is not.
Strategic sourcing is not the purchase of goods and services on an as-need or day-to-day basis, this is largely transactional buying. Instead, strategic sourcing is the opposite: it is the systematic process that directs supply chain managers to plan, manage and develop the supply base in line with the organisation’s strategic objectives. It is, furthermore, a process of understanding categories of goods and services, their intended use and their supply markets based on rigorous analysis to identify the leverage points and develop the appropriate sourcing strategy which reduces the total cost to government and / or increase the benefits / value of the service / commodity to government.
An analysis of the supply chain will ultimately have an impact on how government will direct it’s spend, through procurement, to achieve its broader socio-economic objectives.
A typical analysis will include a needs analysis as to what should be procured to deliver on the mandate; a commodity analysis to understand the goods that have been procured historically and what alternatives are available; a spend analysis that will outline historical and projected spend. It will, furthermore, set the basis against which any potential savings can be measured; a supplier analysis that will determine all possible suppliers and the contract terms; an industry analysis in order to understand the industry dynamics and the leverage (buying power) that government has in the identified industry.
Benefits of Strategic Sourcing may range from recurring annual and once-off cost reductions, to operational improvements throughout the supply chain. These cost savings and operational improvements can be used to achieve government’s broader socio-economic objectives.
The objectives of the strategic sourcing initiative can be summarised in four broad categories:
• To generate savings, while meeting the State’s needs for supplies and services.
• To improve procurement processes and practices.
• To transfer knowledge to supply chain practitioners through training and coaching.
• To clearly understand with a high degree of certainty how the state procures goods and services today and the potential for savings in the future.
Estelle will be discussing strategic sourcing trends within the public sector, including successful pre-tendering planning utilising strategic sourcing principles, at the Public Sector Supply Chain Management Summit in August.