Perhaps one of the most impressive and visible ways that the era of digital transformation has impacted the construction industry is through the increased efficiency and management of supply chains.
The construction market, which by historically been fragmented due to the many different stakeholders and complexities within the industry’s value chain, has experienced a renaissance due to the different technologies impacting supply chain management (SCM).
Keep reading to learn what strategic sourcing really means, how it plays an integral role within the wider construction supply chain, and why it benefits construction businesses of all sizes and specialties.
What is strategic sourcing?
Strategic sourcing is an activity within the broad procurement process that consists of data collection, spend analysis, market research, negotiation, and contracting. However, it stops right before the purchasing and payment stages.
Essentially, sourcing determines what an organization purchases, from where, at what price and how much. It focuses on the total cost of ownerships (TCO), which is the cost to buy something and operate it over its lifetime, as well as the optimization of material sourcing through iterative relationship building and market analysis.
Its role in supply chain management
Although digital technologies unquestionably help the construction industry navigate and optimize complex supply chains, the ever-connected economy and inherent nature of the industry continues to increase the complexity of processes and operations. In effect, this has positioned strategic sourcing as an essential process within SCM and our sector.
Strategic sourcing helps businesses, especially up and coming startups, make sense of the supply chain landscape and meet their objectives, financial or otherwise. Prudent strategic sourcing mitigates problems and risks within the wider supply chain context and can produce many direct and indirect benefits that perhaps you weren’t aware of in the first place!
The process step by step
The strategic sourcing process varies from business to business, but here are the most common steps made popular by the consulting firm Kearny:
- Profile the category: During this stage a comprehensive analysis of your customers’ needs, internal resources, and product volumes and prices should be carried out in order to fully understand your categories or commodities. Ask yourself: What do I need to source?
- Select the sourcing strategy: Based on your business goals, you should develop a sourcing strategy taking into consideration minimizing risk and maximizing profitability. Ask yourself: What do I want to achieve?
- Generate a supplier portfolio: It’s necessary to understand which supplier profile best fits your sourcing strategy, so during this third step you should be performing a comprehensive supply market analysis of your different options. Ask yourself: What choices do I have?
- Select an implementation path: At this point, it’s time to develop your request for proposal (RFP) and define the criteria and templates you will use. Ask yourself: How can I put this information into action?
- Negotiate and select suppliers: You may have received different responses to your RFP, so the next step is to make a short list of potential suppliers and ensure that you have all the information required to make an informed selection. Ask yourself: Which option is best for me?
- Integrate suppliers: Make sure you keep your suppliers briefed and aware of any changes or updates. If integration between suppliers is necessary, it’s crucial not to skip over this penultimate step. Ask yourself: What do I need to communicate?
- Monitor the supply market: Otherwise known as benchmarking, be sure not to rush over this final step in the sourcing process. Measuring your results and evaluating whether your objectives were met will allow you to continually improve your sourcing practices. Ask yourself: What were the results? Can I improve? What’s going on in the market?
Advantages of strategic sourcing
Think about what potential benefits might motivate you to improve your processes and strategies…
The most straightforward advantage to having an agile and comprehensive sourcing strategy is reducing overall costs. However, the advantages don’t end there. Because of the digital nature of many strategic sourcing solutions, this process can also minimize risk, increase productivity through the automation of different processes, and improve your supplier relationships.
Differences between strategic sourcing and procurement
You may hear the terms procurement and sourcing used in similar contexts or even interchangeably, but the two are indeed different. Sourcing is a part of the overall procurement process. To clarify, procurement is an end-to-end process that covers a wide range of tasks including planning, price negotiation, purchase requisitions and orders, and inventory management.
Sourcing is included within this process because it includes analyzing, benchmarking, and managing suppliers (but not purchasing the materials or services). Think of sourcing as a mechanism within the procurement process that’s fundamental before intelligent purchasing can take place.
How strategic sourcing works at Cemex Ventures
Cemex Ventures recognizes that in order to foster the construction industry revolution, it needs to promote and invest in solutions that help the key actors of the industry get the right resources to the right place at the right time. We prioritize Contech solutions that optimize resource sourcing, material and fleet tracking, and inventory management. Take a look at the latest startup in our investment portfolio that’s transforming sourcing in the construction supply chain:
StructShare helps specialty trade contractors and self-performing general contractors (GCs) ace their jobs and gain a competitive advantage by removing the inefficiencies in one of the crucial factors in the business: materials.
The company removes the manual work, frustration, and errors in material/PO management, by digitizing the entire workflow and syncing all data directly into the client´s budget.
They offer an end-to-end purchasing solution tailored for self-performing contractors that streamlines the entire cycle from field orders, RFQs, POs through delivery capture and automated invoice/PO reconciliation; all while providing intimate real-time tracking on budget, inventory, and general expenses.
Do you have a solution that can revolutionize construction’s supply chains? Are you looking for capital and the chance to work with some of the industry’s leading corporates? If so, make sure to apply to the 7th annual Construction Startup Competition launching on April 25, 2023. Follow us on LinkedIn and Twitter for all updates related to the Competition.