Spot Buying Vs Strategic Sourcing: Which Is 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 less 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 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 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 name recognition that make 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 an 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 global freight industry, Cargobase customers are ahead of the game as they’re already analyzing how much spot 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 allows 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 an user-friendly and affordable online solution with zero installation and zero IT. 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.
Get Ship Done & Simplify the Shipping Madness.
Get started using Cargobase for free today, and manage all of your logistics from one place in an easy to use online platform.