In this, the latest instalment in a series of posts by Cass Business School academic Canan Kocabasoglu Hillmer, looks at how companies can utilise strategic sourcing to improve the agility of their supply chains.
Having redefined strategic sourcing and discussed what operational flexibility and supply chain agility entail, we can now start answering the main question that started this series of blogs: How can companies utilise strategic sourcing to increase the agility of their supply chain?
We have already alluded to the fact that there are two routes from strategic sourcing to agility: managers can use strategic sourcing to directly build supply chain agility or they can capitalise on its link to operational flexibility, which also improves agility.
This-two prong approach is due to the two main functions supply chains have; namely, the ’manufacture’ and distribution of products and services, and the transfer of information that helps the synchronisation of supply and demand. The role of strategic sourcing in production and distribution is captured via operational flexibilities. Yet, its role in the diffusion of information needed to match supply with demand can be understood via its direct link to agility.
We already discussed how strategic sourcing can enhance operational flexibilities in part III of the blog. The remaining question is how improved flexibility can translate into a more agile supply chain.
Operational flexibilities allow companies to react swiftly to market information and adjust their offerings according to the changes in consumer demand. For example, supply-related flexibilities enable better coordination among supply chain partners as companies find that their suppliers’ capabilities are aligned with their changing needs. The supplier being perceived as ‘capable’ is also a precursor to trusting relationships, which increases the likelihood of joint planning activities.
Design-related flexibilities provide companies the ability to offer new products or adjust existing products according to the feedback from their customers or as a response to competitor moves. Lastly, process-related flexibilities allow for the adjustment of capacity and production plans, in line with the ebbs and flows of customer demand.
It is worthwhile reiterating that these flexibilities do not necessarily translate into agility. If companies have difficulty reading the market, these flexibilities provide little consolation.
The direct link between strategic sourcing and supply chain agility is due to the information processing needs of supply chains. Strategic sourcing supports stronger buyer-supplier relationships, which facilitates the exchange of demand and supply information. The elevation of the procurement department enables a two-way information flow between the company executive suite and suppliers. Procurement communicates the strategic direction of the company to its suppliers, and in turn it feeds back critical market-related information that suppliers have to the strategic planning process.
Internal integration allows for increased information-sharing among the different departments and a coordinated response to day-to-day and short-term issues. Supplier development activities tend to strengthen the relationship with suppliers, which translate into more communication and openness.
To sum up, procurement can have a valuable role in both the creation of products/services and the diffusion of information via a carefully planned strategic sourcing initiative.
Canan Kocabasoglu Hillmer is a faculty member at the Cass Business School.