Strategic Sourcing

Strategic sourcing

Strategic sourcing is about having a targeted approach to your procurement activity. A sourcing strategy will help you to formalise the way you gather information, so you can find the best possible value that aligns with your organisation’s goals, long term. Strategic sourcing is a long-term process and requires continuous re-evaluation of sourcing activities, analysis of the market and recognising your organisations goals.

Strategic sourcing is important because it can help you save costs through the monitoring of the market and sourcing the right suppliers. It also acts as a way to maintain long-term relationships with suppliers and they are selected on their compatibility with your organisation’s goals.

What is the difference between sourcing and strategic sourcing?

Traditional sourcing and strategic sourcing have some big differences. The main one being cost. Traditional sourcing is about sourcing goods at the lowest possible cost per unit whereas strategic sourcing is creating the best possible value and looking at the total cost of ownership. No longer are organisations in a ‘what to buy and from who’ way of thinking but are now thinking strategically about what value suppliers can bring.

• Strategic sourcing looks at all the costs of an organisation’s operation
• Traditional sourcing tends to focus on supplier pricing, whereas price is only one component of strategic sourcing
• Strategic sourcing involved in-depth reviews and agreements that will have the biggest impact on operations
• Traditional sourcing tends to use a locally known supplier based, compared to strategic sourcing that operates globally
• Strategic sourcing focus on the highest possible quality for lowest cost, traditional sourcing is the opposite. Traditional sourcing focuses on high volumes that may generate a mass discount.

How do you conduct strategic sourcing?

Strategic sourcing can be broken down into seven key stages.

1. The first step of strategic sourcing is to analyse product categories and processes within your organisations. What is the quantity? Where are they located and what processes are used? This data must be documented with as much detail as possible.
2. The next stage is to do a supply market analysis. Analyse the supplier’s marketplace for risks and opportunities and factor in all the costs, from raw materials to transportation.
3. Determine your sourcing approach by using a cross functional team. Think about your current suppliers and if there are any alternatives and how competitive the supplier market is.
4. Research your potential suppliers thoroughly. Request a proposal from suppliers based on your specifications such as delivery, product, cost and legal terms and conditions.
5. Select your supplier once all proposals are in and ask for clarification where needed. Strategic sourcing involves multiple rounds of negotiations to get the right supplier
6. Communication is key to implementing. Ensure that suppliers are aware of any changes in requirements
7. Monitor the performance of your suppliers to ensure full value is being achieved.