Did you know that 29% of companies relying on traditional sourcing are more vulnerable to supply chain disruptions? This could change with strategic sourcing.
Think about what that means: nearly a third of companies could be caught flat-footed the next time a crisis hits, just like we saw during the global supply chain shocks of 2020. If you’re still using traditional sourcing methods in the highly competitive Consumer Packaged Goods (CPG) industry, you may be missing out on long-term savings, innovation, and —most crucially —supply chain resilience.
This is where strategic sourcing makes all the difference. But what exactly is strategic sourcing, and why is it becoming a necessity for forward-thinking CPG companies?
Let’s take a closer look at how shifting from traditional sourcing to strategic sourcing can elevate your procurement strategy, reduce risk, and give your company a powerful competitive edge.
Sourcing vs. strategic sourcing: what’s the difference?
To understand the impact of strategic sourcing, it’s important to know the fundamental difference between traditional sourcing and strategic sourcing. Traditional sourcing is primarily about securing materials and services at the lowest cost, often based on transactional relationships with suppliers.
Companies typically send out requests for quotes, compare prices, and lock in suppliers for short-term contracts focused on cost, quality, and delivery times. It’s reactive and often limited to addressing immediate needs.
But consider this: according to a 2022 Hackett Group study, companies using only traditional sourcing methods are nearly 30% more likely to suffer from supply chain disruptions. When a global crisis or unexpected event hits, they find themselves scrambling to maintain operations, losing valuable production time and market share.
Now, compare that with strategic sourcing — an approach designed to create long-term value. Instead of just reacting to immediate needs, strategic sourcing is proactive. It involves a thorough assessment of suppliers based on multiple criteria, such as innovation capabilities, resilience, and alignment with sustainability goals.
How CPG leaders are using strategic sourcing to success
Mondelez International, the maker of brands like Oreo, Cadbury, and Toblerone, faced challenges with sustainably sourcing cocoa, one of its key ingredients. To address this, Mondelez launched its Cocoa Life program as part of its strategic sourcing approach.
Through this program, Mondelez:
- Invested $400 million to support over 200,000 cocoa farmers across six countries.
- Created long-term partnerships with local farmers and cooperatives to ensure a stable and sustainable supply of cocoa.
- Reduced its dependency on commodity price fluctuations by focusing on long-term sustainability in the supply chain.
As a result of its strategic sourcing initiatives, Mondelez improved its cocoa supply chain resilience and met growing consumer demand for ethically sourced products. This initiative also helped the company maintain product consistency and avoid the disruptions that plague other chocolate manufacturers dependent on unsustainable sources.
Strategic sourcing: a comprehensive, proactive strategy
Strategic sourcing takes a more holistic and long-term approach. Instead of viewing procurement solely as a transactional process, it treats sourcing as a crucial part of a company’s overall business strategy.
When done well, strategic sourcing helps companies not only secure materials but also create more robust supply chains, reduce costs over time, and adapt to market changes more fluidly.
Let’s get an example of a beverage manufacturer sourcing aluminum cans. In a strategic sourcing framework, they would not only compare price and delivery times but also consider factors like:
- The long-term stability of the supplier
- The environmental and social practices of the supplier
- How changes in global aluminum prices might affect future contracts
- The possibility of switching to more sustainable packaging materials
- Risk management strategies, such as having secondary suppliers in place for emergencies
Strategic sourcing teams also continuously evaluate and manage relationships with suppliers, ensuring they are partners in the company’s long-term success. This process can include renegotiating contracts as market conditions change, collaborating with suppliers on product innovations, and working toward shared sustainability goals.
Why strategic sourcing is interesting for CPG companies
1. Cost savings over time
While traditional sourcing might seem cost-effective at first, strategic sourcing delivers significant long-term savings. According to the 2023 Deloitte Global CPO Survey, companies that transitioned to strategic sourcing reported a 7-12% reduction in procurement costs within the first year. This is achieved by renegotiating supplier contracts, optimizing supply chain efficiency, and continuously identifying cost-saving opportunities through data analysis.
2. Risk management and supply chain resilience
The COVID-19 pandemic and subsequent global supply chain disruptions were a wake-up call for many CPG companies. In fact, a 2022 PwC study found that 68% of companies with a strategic sourcing framework were better positioned to handle supply chain disruptions compared to those using traditional methods. By diversifying suppliers, strengthening relationships, and building in redundancies, companies can avoid costly shutdowns and maintain production during crises.
3. Innovation and competitive advantage
Strategic sourcing isn’t just about cost—it’s about fostering innovation. Companies that collaborate closely with suppliers often see significant advancements in product development. According to Procurement Leaders, businesses using strategic sourcing are 3x more likely to co-develop innovative products with their suppliers. This way, companies can speed up product launches and improve overall quality, aligning with suppliers on goals like sustainability or new material development.
4. Sustainability and ethical sourcing
Sustainability has moved from a “nice-to-have” to a business “must-have” in the CPG industry. A 2021 NielsenIQ report found that 73% of global consumers are willing to pay more for products that are sourced sustainably.
Strategic sourcing helps companies align their procurement strategies with these consumer demands by working with suppliers committed to reducing their environmental footprint. By focusing on sustainable materials and ethical practices, companies can enhance their brand image and capture market share among eco-conscious consumers.
5. Supplier relationship management
In traditional sourcing, supplier relationships often begin and end with the contract. But strategic sourcing places a premium on supplier relationship management (SRM), fostering long-term partnerships that drive value.
A 2023 Gartner report noted that companies with strong SRM programs see a 20-25% improvement in supplier performance, leading to better quality materials, faster delivery times, and more favorable contract terms.
Making the shift: let GrowinCo. help you with that
Do you have core ingredients that rely on single-source suppliers? Or ingredients and packaging components that haven’t been analyzed in a while, leaving you uncertain if they’re still competitive in today’s market? GrowinCo. is here to help.
We specialize in strategic sourcing and co-ideation, supporting you in identifying opportunities for cost savings, mitigating supply chain risks, and enhancing your product’s competitiveness. Here’s how:
- Challenge your specs: We’ll help re-evaluate your existing specifications to identify areas for improvement, reducing complexity and cost.
- Supply-chain resilience: For single-sourced ingredients, we help you find alternatives and implement contingency plans to ensure a reliable supply chain.
- Market research and benchmarking: Using detailed market insights, we assess whether your current suppliers are still the best fit, or if better options exist.
- Co-ideation and innovation: Together, we’ll explore new ways to leverage your ingredients and packaging, from adopting cost-effective alternatives to harmonizing specs for greater productivity.
- Supplier relationship management: GrowinCo doesn’t just help you source — we optimize your supplier relationships for long-term success, ensuring collaboration and continuous improvement.
GrowinCo. is your trusted partner in rethinking raw materials and packaging. By aligning your sourcing strategy with innovation, cost efficiency, and market competitiveness, we help you unlock new opportunities with minimal resources.
Take action today — reach out to GrowinCo to learn how we can help you follow a strategic procurement plan that positions your company for long-term success. If you future-proof your supply chain, you’ll not only reduce costs and mitigate risks but also unlock new opportunities for innovation and sustainability.
