The year 2024 will be remembered in business as a time when fragile supply chains faced some of their sternest tests.
by Emmanuel Nzombe (MCIPS, CIPP)
These challenges stemmed from global disruptions, including trade wars, soaring shipping costs, and climate change effects like El Niño, which posed significant threats to agriculture-based supply chains. Furthermore, the mining industry worldwide was hit hard by plummeting prices for critical minerals such as platinum, nickel, and diamonds. The stability once enjoyed by the platinum industry, a mainstay of Zimbabwe’s mining sector, took a surprising downturn, with authoritative voices in the industry predicting up to an 18-month decline. Even the newly celebrated mineral, lithium, was not spared.
This turbulence sent many companies into panic, forcing them to trim any costs deemed excessive to preserve their financial health. Unsurprisingly, workforce cuts became a common solution. Yet, even after these reductions, many companies found that their stability was not restored. As management author Tom Peters famously said in In Search of Excellence: “The operation was a success, but the patient died.” This raises an important question: Why do corporate survival strategies so often miss the mark? While restructuring can be necessary, focusing on sustainable cost-saving areas, rather than only headcount reductions, can yield more lasting results.
This brings us to Strategic Sourcing, often misunderstood or underutilized. Strategic Sourcing is a data-driven approach that aligns procurement with business goals, enabling significant cost savings, quality improvement, and risk minimization. Unlike the common practice of relying on a simple three-bid process, Strategic Sourcing views business spend holistically, considering the overall climate and supply market capabilities. This method leverages bargaining power and synthesizes market capabilities into long-term value while mitigating risks. Strategic Sourcing isn’t just a tool for crises; it’s an essential, continuous strategy that must be driven from the C-suite and adopted throughout the organization.
Why Strategic Sourcing Is Essential
As an African proverb wisely states: “A chameleon that wants to survive a burning bush must abandon the majestic walk of its ancestors.” The traditional methods of acquiring goods and services no longer guarantee survival in today’s dynamic environment. Albert Einstein aptly described insanity as doing the same thing repeatedly while expecting different results. Below are some critical outcomes that Strategic Sourcing can achieve, making a compelling case for its adoption.
Leveraging the Power of Business Spend
Are you paying the right price for goods and services considering your purchasing volume? Are you maximizing value from the supply market or merely accepting minimal benefits? If the answer is “no,” it’s time to re-evaluate your procurement approach. Businesses typically spend 45–75% of their budget on external goods and services and around 15–20% on wages. Cost-cutting efforts focused solely on headcount overlook potentially significant savings in third-party spending.
This doesn’t devalue savings from workforce reductions; they provide temporary relief. However, a robust approach that taps into broader supply market capabilities through Strategic Sourcing can yield substantial savings, enhanced quality, and improved supplier relationships. Relying solely on a three-bid process is insufficient; it prevents companies from harnessing the full potential of the supply market.
Spend Visibility
Today, procurement fraud is no longer limited to bribes or kickbacks. A new, often unnoticed form of fraud lies in tactical procurement practices focused on short-term achievements, which lack visibility into long-term spending. Celebrating cost-cutting heroes who lack an understanding of where funds are going is dangerous. The inability to monitor spend, especially when advanced management software is widely available, is unacceptable. If you can’t measure it in real time, you can’t manage it effectively, and without management, continuous improvement is impossible.
Traditional sourcing practices, which often focus on making purchases in a reactive manner, leave procurement professionals with limited time to analyze and gain visibility over their spending. Tactical buyers are frequently overwhelmed by the pressure of addressing numerous equipment breakdowns, making spend analysis seem like an unnecessary luxury. However, Strategic Sourcing is rooted in a proactive, thorough analysis of historical spend data, providing a foundation for guiding sourcing strategies that meet current and future business needs. As Nobel Prize-winning economist Ronald Coase aptly states, “If you torture the data, it will confess to everything.” Examining spend data in depth can reveal hidden inefficiencies, prompting critical questions about spending habits, such as: What did we buy? When and why did we buy it? How much did we pay? Is this the best price? How many suppliers did we use compared to the market’s options? Can we secure better quality at a lower cost elsewhere? These insights help drive informed decisions that create added value for the business.
Supplier Relationships – Mind Who and How You Partner with, in Business
Consider leguminous plants that thrive through a symbiotic relationship with nitrogen-fixing bacteria in the soil. These bacteria convert atmospheric nitrogen into a form the plants can absorb, while the plants provide oxygen for the bacteria’s metabolic needs. Without one another, neither can survive. This principle also applies to strategic business partnerships. Long-term, mutually beneficial relationships with critical suppliers are often undervalued in procurement. Committed and loyal suppliers not only support the business during challenging times but may also contribute innovative ideas aligned with strategic goals. Relationships based on trust, transparency, and open communication yield significant value over time. Leveraging your suppliers’ unique capabilities can provide substantial competitive advantages without the high cost of developing these resources internally.
Business relationships deliver optimal value when sustained long enough to foster a deep understanding of each party’s needs. Setting clear quantitative and qualitative KPIs tied to strategic goals and incorporating these into mutually beneficial contracts can enhance supplier performance. Transitioning key suppliers from one-time interactions to trusted partners creates a compelling incentive for them to invest in capabilities that support your business. Suppliers benefit from guaranteed long-term business, while you gain access to improved capabilities that support your strategic goals.
On the other hand, infrequent, transactional interactions and hard-nosed negotiations can be unsustainable. Suppliers have little incentive to be loyal or invest in inventory for a client that only seeks them in times of crisis. Adversarial relationships can be counterproductive, whereas a collaborative, mutually beneficial approach allows each party to assist in overcoming challenges, building resilience, and sustaining value creation.
Risk Management and Supply Chain Resilience
Murphy’s Law states, “Anything that can go wrong, will.” In today’s volatile global environment, supply chains face increasing risks. From geopolitical conflicts and trade wars to environmental changes and regulatory shifts, these challenges threaten supply security and complicate traditional low-cost sourcing strategies. As shipping costs rise and lead times become unpredictable, the risks in supply chains grow, making traditional sourcing inadequate for long-term sustainability. Supply Chain practitioners need to anticipate and mitigate risks by establishing Strategic Sourcing practices that prioritize resilience.
Strategic Sourcing emphasizes building partnerships with qualified suppliers from multiple regions to diversify and manage supply risks effectively. Foresight in sourcing reduces the impact of unexpected disruptions, ensuring that the business can adapt and continue operating. This approach goes beyond immediate needs, recognizing that reliance on a single supplier or region exposes the business to potentially severe risks.
Quality and Innovation – A Double-Edged Sword
Today’s consumers are highly informed and demand both quality and competitive pricing. They have access to high-quality, affordable products from around the world and expect quick delivery. Failing to meet these expectations can lead to a loss of customer loyalty. Supply Chain practitioners must exploit the global market’s expanding capabilities, focusing on price, quality, and delivery timelines. Traditional price-centric sourcing cannot guarantee overall business performance in today’s competitive environment. Strategic Sourcing enables businesses to access high-quality products at reasonable costs, enhancing customer loyalty and business longevity.
Supply Base Rationalization
Zimbabwe’s volatile economy has led to a surge in local enterprises, with many people starting side businesses to diversify their income. These new businesses add unique capabilities to supply chains, yet not all suppliers in the market warrant attention. Supply-based rationalization is essential. It involves identifying and maintaining an optimal number of suppliers who best align with business needs and assessing associated risks. Purchases crucial to the business’s survival or those with significant supply risks should be prioritized for diversification. Relying on a single supplier for critical goods is a vulnerability.
Conversely, managing an excessive number of suppliers for low-risk, low-spend categories is inefficient. It consumes valuable time and resources that could be better spent on strategic purchases. Maintaining a streamlined supplier base with strong, long-term relationships enhances value creation. The modern procurement approach advocates consolidating spend with a select few capable suppliers to generate more significant and measurable outcomes.
Conclusion
There has never been a more opportune time to revolutionize procurement in Zimbabwe. Embracing world-class procurement practices is essential to deliver tangible value for businesses. It is never too late to make this transformation.
Written by Emmanuel Nzombe (MCIPS, CIPP), in his personal capacity. I welcome your feedback at [email protected].