Spot buying vs strategic sourcing: which is the best for you?

Procurement is a big part of the bottom line for every business. There are three main philosophies for procurement strategy.

Spot buying vs strategic sourcing: which is the best for you?

Procurement, the process of acquiring goods or services from external partners and agreeing to terms to make sure things go smoothly, is a big part of the bottom line for every business. Logistic service providers (LSPs) and everyone in the freight industry deal with procurement processes on a daily basis. There are three main philosophies for procurement strategy.

Strategic Sourcing: The concept of strategic sourcing refers to long-term commitments, detailed plans, and strategies with built-in forecasts. This is the bread and butter for large organizations with resources to flaunt and money to burn. This process involves more than finding the cost, organizations are able to analyze the total impact of every transaction. This involves itemized spend analysis, market research, and thorough supplier evaluation. All operations are tracked with Enterprise Resource Planning (ERP) software which helps logistic professionals make quick calculations and see the impact of their decisions.

Spot Buying: Spot buying is the opposite of strategic sourcing. It’s used by smaller organizations with fewer resources and more “Oh, Ship” moments. Instead of long-term contacts, procurement is secured with phone calls and emails. Immediate payment or a credit line is often required. Price and timing are the key factors. Besides a lack of resources, unexpected circumstances or one-time opportunities may also lead to spot buying.

Tactical Sourcing: Tactical sourcing is another widely used term. It refers to a middle point between strategic sourcing and spot buying. These are strategic decisions, but short-term in nature. They’re often considered to be more reactionary as opposed to methodical.

When is strategic sourcing better?

Strategic sourcing is the Kobe beef of the procurement world (or Yamashita Spinach for vegetarians). It’s the best. But it’s not always feasible or the best option for every occasion. Here are some instances where companies can go full “wagyu.”

Company Size: As discussed, company size and the resulting resources play a huge role. Smaller organizations simply aren’t able to do the forecasting or have enough lead time for strategic sourcing.

Company Structure: Keeping up with day-to-day operations is a completely different job than managing long term strategic responsibilities. The people and teams in place are another crucial factor for deciding a strategy.

ERP Software: For mid-sized organizations, the presence of an ERP system could be deciding factor on how strategic their procurement gets. This allows them to do spend analysis and forecasting quickly.

Timing: Any organization that can keep things running while planning long-term procurement will do so. For those with urgent demands and strict deadlines, spot or tactical makes more sense.

Partnerships: Established companies will have more partnerships in place that lead to more long-term commitments for procurement. They’ll also have the name recognition that makes strategic sourcing more likely to be viable.

When is spot buying required?

Spot buying is the late-night delivery food of the procurement world, in times of need – you do what you have to do. There are instances when a spot buying approach makes more sense, other times it’s the only option. Important factors include,

Urgency: Whether it’s a shipment that fell through or a one-off instance not included in a strategic contract, rushed shipments are the most obvious case when spot buying is needed.

Price: Exclusive spot buying will raise costs, but there will always be occasions where the spot buying approach is the most cost-efficient. Research from the Hackett Group showed that strategic sourcing would drive an average of 6% in savings, while spot-buying would drive 4.3% on average. There’s less energy and resources required for spot buying so the return on the investment is greater in many cases.

Additionally the inverse of the factors above: company size and structure, ERP software, timing, and partnerships all influence the decision to conduct spot or technical buying.

When is spot buying better?

Although the traditional approach is strategic sourcing, it would be foolish to ignore the changes that have occurred over the past decade. This includes the evolution of technology, globalization, increased product variance, and overall growth of the supply chain.

  • The Right Technology: With a complete management platform like Cargobase, the inefficiency problems of spot buying are no longer an issue. The entire process can be managed with one system so you can take advantage of spot buying opportunities.
  • Flexibility And Future-Proof: A spot freight platform also allows companies to be more agile and nimble when it comes to their freight. Accenture’s report about high performers in freight forwarding covered the importance of flexibility. As data continues to be integrated into the global freight industry, Cargobase customers are ahead of the game as they’re already analyzing how much spots freight costs in various situations.
  • Capitalizing On Opportunity: A non-spot solution does not let you take advantage of the vast amount of available space on containers and trucks. These LTL and LTC openings should be utilized and spot freight platforms allow you to do so in a few minutes.

How to simplify the spot buying process

All this information is relatively simple, but when you’re in the middle of #shipstorm – it can be overwhelming. Tracking down shipments, putting out fires, barreling through emails, and clocking phone time like a telemarketer is not the best use of your time. Cargobase is a user-friendly and affordable online solution with zero installation and zero IT skills required. The platform (and app) is easy on the eyes and empowers users to take control of three core areas.

Request & Book

  • Automate the multi-freight mode quoting process with providers.
  • One simple invitation, multiple quotes. Just request, compare, and book!

Track & Manage

  • Consolidates all tracking events, messages, invoices, and updates.
  • Share documents, status updates, or even have a friendly chat with your carriers.

Audit & Analyse

  • Manage the full lifecycle of any shipment by tracking audit events, historical data, and actions.
  • Create and export standard reports, leverage insights, and access real-time data

How to make your lives as logistics professionals simpler

There are overwhelming moving parts across the entire supply chain management. Perhaps you're working with legacy software or rely on manual work. It does get things done but doesn't make your life easier, nor does it help to improve ROI and show performance. Pick the right tool for yourselves and your procurement/logistics operations team.

A user-friendly, intuitive transportation management system (TMS) should cover the following:

Multimodal & Global

  • Gives you full visibility into all freight modes across the globe
  • Puts you back in the driver's seat to make short-term, mid-term, and long-term freight procurement and management decisions

Modular & Scalable

  • Enables shippers to procure freight, manage rates, book freight
  • Gain real-time visibility into all freight, audit invoices

Easy to Implement & User-friendly

  • You shouldn't take more time to implement software than the time and money a tool actually helps you to save
  • Enterprise software is only as powerful as how users leverage it, make sure you align internally on the core objectives and don't be distracted by fancy features rather than solving the pain points of your team

Stellar Customer Success

  • Don't overlook the power of onboarding and training. Pick a partner who can work with you hand in hand to understand your operational needs rather than clocking the license and consulting fee
  • A TMS provider who is committed to customer success will be able to align with your KPI and evolve as you scale

Cargobase has empowered businesses across 50 countries in the last 10 years, with experiences in spot-buy freight and full-fledge TMS. Rated as #1 across 11 attributions on G2 and loved by Fortune500 in automotive, semiconductor, oil and gas industries.

Let's chat to get your ships done!

The article was originally published in April 2022 and last updated in November 2022.

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