It has become, in some fleet circles, the monster under the bed — strategic sourcing, the process by which a company analyzes what it buys, then takes actions to fully leverage the spend. It has been introduced into nearly every nook and cranny of company operations, and fleet management is no exception.
Not too long ago, fleet managers used their own experience and knowledge of the marketplace to determine suppliers and when new ones should be sought. It was a relatively cozy industry. Fleet managers knew salesmen, met with them occasionally, and managed the sourcing process entirely themselves.
But the business world has changed, and new processes with new tools have been introduced, some successfully, some not. Strategic sourcing is one of the successful tools. Pining for the old days won’t change that reality. Smart managers embrace these changes and use them to thrive.
What is Strategic Sourcing?
No single dictionary definition adequately defines strategic sourcing. Some insist it is a technology-driven process, using online tools to streamline what once was simply called purchasing.
Others use the term to describe the centralization of the procurement process, done to leverage a company’s total spend on any particular good or service. In reality, strategic sourcing is a combination of the two descriptions and can be very effective in lowering company costs and streamlining procurement.
Companies that manufacture or assemble hard goods sometimes differentiate between sourcing product-oriented items and non-product oriented items. Raw materials and subassemblies intended for the production line are sourced separately from goods and services the company uses to conduct business. In such circumstances, fleet management falls under the latter category.
Either way, strategic sourcing allows a company — particularly one whose corporate structure includes diverse business units — to combine into a single amount what these units spend on the same or similar goods and services and then source the market for suppliers.
The technology available today has facilitated the strategic sourcing process. Online bidding tools, reverse auctions, and other tools allow sourcing professionals to quickly and easily obtain information and bids from large numbers of potential suppliers.
What Strategic Sourcing Isn’t
When used properly and when carefully structured, strategic sourcing isn’t what many in the fleet industry believe it is: purchasing. The word “sourcing” is used intentionally to describe the process. Two basic steps are involved. First, determine what must be purchased, and second, conduct a search to find sources, suppliers who can provide products or services. Sourcing groups do not simply barge into the fleet (or any other) department demanding an RFP be issued simply to change vendors.
The process usually begins with the sourcing group surveying each function to uncover how, and from whom, resources required to do business are purchased. Sourcing reviews the results of this research and determines where a strategic effort might provide savings.
Fleet managers can often be sensitive when outside influence is brought to bear on their operations, and sourcing is no exception. However, it is in the company’s best interests to make certain what it purchases provides the highest value possible, combining quality and price. This process is not possible without the full participation and cooperation of the fleet manager.
How Does the Process Work?
In his book Strategic Industrial Sourcing, Toshihiro Nishigushi describes seven basic steps to strategic sourcing:
- Assess the company’s current spend. (What is bought where?)
- Evaluate the supply market. (Who offers what?)
- Develop a sourcing strategy. (Where to buy what, while minimizing risks and cost.)
- Identify suitable suppliers.
- Negotiate with suppliers.
- Implement new supply structure.
- Track results and restart assessment.
There are pitfalls in this process that can prevent a fleet manager from teaming with sourcing to produce useful results. For example, in a diverse corporate environment with multiple business units, each with a fleet operation, individual unit fleet managers may not know (or care) where and how peers in the organization lease vehicles, who handles maintenance management, or any other primary fleet function. This individualized approach can result in a fractured sourcing process, with each unit fending for itself, receiving pricing in line only with its individual spend.
Strategic sourcing principles indicate such situations are particularly disposed to benefit from the process. The difficulty occurs when entrenched interests put up roadblocks. Business unit fleet managers may have long-standing supplier relationships and be loathe to interrupt them with an RFP and the possibility that a new supplier be “forced” upon them.
This kind of reaction can be a fleet manager’s career stopper. It reveals an unwillingness to work in a team setting, a lack of regard for the overall company good, and shortsightedness in placing personal preferences before strategic thinking.
Note carefully that the sourcing process involves more than sourcing staff. What sourcing professionals say is that their job is the process, but they need product/subject experts to be successful. In this environment, the fleet manager can not only survive, but thrive as his or her world intersects with strategic sourcing.