Elevate Your Procurement Strategy with Industry Data

Procurement negotiations are often laser focused on one thing: price. But every sourcing manager knows that the lowest price doesn’t always get you the best quality, the greatest efficiency or the lowest total cost of ownership. To meet those goals, procurement needs a wide array of internal operations and external market data to make informed decisions and be confident going into negotiations.

It’s easy to overlook industry-level data. During the frenzy of purchase orders and bids, it’s easy to fixate on specific details, examining each one under a microscope. By zooming out and expanding your research during the procurement process, you can gain a wealth of information and additional perspectives that influence the buyer-supplier relationship. Using broader industry data can help transform negotiations from a tug-of-war over pennies to a strategic alignment of values, trends and long-term gains.

What is strategic sourcing?

Strategic sourcing provides a framework for procurement organizations to seek better results, and enables teams to focus on maximizing the value suppliers add instead of attempting to obtain goods and services at the lowest possible price. This framework involves using internal spend data, market analytics, and qualitative and quantitative data to develop supplier relationships and contracts that align with the organization’s broader objectives. When objectives shift from cost to value, strategic sourcing empowers procurement professionals to become trusted advisors to their organization.

Industry data serves as one key facet of a well-developed strategic sourcing framework. Such data can help to illuminate market trends, potential risks, supplier standings and emerging innovations that go far beyond immediate cost. By integrating market and industry data into the sourcing process, procurement teams can make well-informed decisions that are proactive, optimized and aligned with the larger industry landscape.

Let’s look at four key elements of a strategic sourcing process and how you can elevate them using industry data.

1. Analyze costs and prices

Many factors influence a supplier’s costs, how they price their product or service, and where they can be flexible in negotiations. Yet suppliers are not always transparent with those facts and figures, forcing buyers to negotiate on assumptions and research into sources that may be biased or out of date. Industry data can help you build and validate those assumptions, so that you can approach negotiation meetings with confidence.  

Macroeconomic cost factors

Global geopolitical events, like international conflicts or changes to trade policies, can cause sudden shifts in your variable costs. Staying attuned to financial policy, global trade patterns, and industry growth rates grants you a predictive edge. Price drivers like interest rates, commodity prices or the trade-weighted index can all influence how much you will pay over the course of a contract. Staying ahead of these drivers can help you anticipate price changes instead of being surprised by them.

Cost modeling

Cost modeling is another way to prepare for price negotiations. Creating a should cost model involves breaking down a product into its component parts and estimating the cost of materials, labor, overhead and profit margins to determine a likely price. Industry data, such as the average cost structure for market operators or average wage data, can help you develop a cost model, and can illuminate areas where suppliers may be quoting you more than the fair price for their products or services.

The key takeaway? Costs and prices aren't static figures. They aren’t set in stone, and they change in response to a vast array of industry dynamics. By diving into this data and anchoring decisions in the broader context, procurement evolves from a transactional function to a strategic powerhouse, driving value and innovation throughout the organization.

2. Gain visibility across the supply chain

Supply chain management is a key element of strategic sourcing. Global supply chains are complex and interconnected. It’s important to analyze your own supply chain from a wider perspective, such as international trade patterns that will determine where to source and assemble your products, just as it’s critical to zoom in to your keystone supplier points across the chain so you know where to mitigate risk through your contract terms. Data provides an integral perspective to your supply chain analysis at every level.

Holistic supply chain perspectives

Understanding the overview of a product’s supply chain may seem like an obvious requirement, but it’s often overlooked. You may be familiar with the flow of goods for established products, but risk and opportunity exist at every stage along that path. All supply chains are interconnected; if you focus only on the suppliers directly in your own chain, it’s easy to miss the push and pull of other industries that are part of the network, whether they’re relying on the same upstream suppliers or being kept afloat by the same downstream buyers.

What’s the cost of such oversight? Just ask anyone who was impacted by global shortages of inputs like microchips, lumber and oxygen gas in recent years. No single industry caused these shortages, but they were all forced to adapt to the effects of supply chain issues that rippled across the economy. Holistic visibility into your own supply chain and those that are interconnected to it can help you prepare for risks, spot inefficiencies and optimize your purchases to deliver the best value.

Responsive procurement

In today's fast-paced world, adaptability is king. Organizational red tape can prevent you from responding quickly to every market shift, but a lack of timely data and analysis can prevent you from acting and reduce the value of the moves you do make. Leveraging industry insights enables procurement to become a responsive entity, quick to react to market changes and disruptions. Real-time data helps you pivot strategies on the fly, ensuring continuity and resilience.

Supply chain management is a complex process, but industry data can help shine a light on the structure and changes that will impact your business. Industry data demystifies the intricacies of a supply chain, allowing procurement professionals to navigate its complexities with more confidence and agility.

3. Conduct supplier risk management

Effective strategic sourcing involves a focus on building supplier relationships that align objectives for both companies and are built to last for the long term. To invest in lasting supplier relationships, buyers must always investigate their suppliers’ risk management practices. Diligent risk management protocols should always account for the fact that there are external forces outside of a company’s control. Pairing qualitative analysis of the industry with quantitative financial benchmarks can help create a robust risk analysis of your prospective suppliers.

The wider industry landscape

Supplier risk goes beyond a company’s individual operational capabilities. Understanding the external environment of the industry in which they operate is crucial to assessing a company’s risk. Is business competition a viable threat to their revenue streams? Are they heavily reliant on a single downstream buying market? While some risk factors might be universal for every supplier in the industry, it is still important to understand the broader industry risks, and to evaluate how the supplier protects themselves against those risks.

Using financial data

Assessing supplier risk should also include analysis of their financial position. However, it’s important to note that what constitutes a good financial ratio in one industry might be a bad ratio for businesses in another industry. Using industry financial benchmarks can help you assess the financial status of a potential supplier in the context of their market and peers. Financial risk isn’t static, so reviewing this type of data every few years can support the decisions to entrench your existing relationships or diversify your supplier base.

In essence, supplier risk management isn't just about understanding the suppliers you work with today, but anticipating the challenges of tomorrow. Incorporating industry data into your risk analysis process allows you to identify and mitigate risks and seize opportunities, ensuring resilience and adaptability in an ever-evolving market.

4. Assess technology and trends

Technological advancements are moving faster than ever. Even in mature industries, technology has changed the landscape of product and service delivery. While no one can predict what technology will dominate in the years to come—or which companies will rise and fall on the back of their investments—it pays to keep a finger on the pulse of emerging technologies and industry trends. Waiting until new trends have settled can result in missed opportunities or, worse, getting left behind.

Predictive advantages

Embracing industry tech trends can drastically improve your foresight in negotiations. Whether it's the adoption of AI-driven analytics, blockchain for traceability, or IoT for real-time monitoring, these technologies are more than just buzzwords. They provide actionable insights, streamline operations, and open new avenues for cost-saving and efficiency by supporting your business process analysis. Staying up to date allows you to anticipate changes, adapt faster and position your organization as a leader rather than a follower.

Innovation as a negotiation tool

Think about the weight your negotiations carry when you're aware of (or even ahead of) the curve on industry innovations. It’s not just about leveraging the latest tools but understanding how these innovations might influence supplier operations, contribute to your larger goals or open new possibilities for collaboration. Being knowledgeable about current and upcoming trends positions you as a forward-thinking partner, influencing discussions and allowing for strategies that capitalize on innovation.

Staying ahead of technology and industry trends shouldn’t be an afterthought, but a central part of the procurement research process. By actively integrating these insights into your procurement strategies, you ensure that your approach isn't just reactive to today's needs but is primed to harness the opportunities of tomorrow.