Strategic Sourcing– The Way to Increase Profits
Strategic Sourcing is a purchasing/procurement method that saves a firm or company money. How does it work? It analyzes DATA and determines where the best buys are and why they are better buys than other stores.
Let’s take an example– If you buy dishwasher soap at store X for $3.00/box and a similar, but different soap at store Y for $4.00 box, your first thought is that it costs 25% more, $1, to buy at store Y. Well, prima facie, that is true. However, if you are able to use less of the soap at store Y for each load, the soap lasts longer and you are able to accomplish more loads of washed dishes.
OK– initial cost is more, usage costs are less, end result is greater efficiency (more dishes washed) at less cost.
Take a look at all of the products that you buy– either in your business or at home. The logic applies equally. There is nothing complicated or complex about strategic sourcing— you can analyze the soap usage by seeing how many loads of dishes you can clean with one box. Now, in a larger industrial environment, we do the same thing, however, use computers to analyze product usage over time.
What this example has shown us is that the TOTAL OWNERSHIP COST is less, however, buying the initial product, the dish soap, costs more. Think about this at home. You will find that there is extra profit to be obtained just by doing more data analysis.