Strategic Sourcing is a process that helps you identify and purchase products or services from suppliers who meet your needs. Strategic sourcing can be used in any industry and helps companies reduce their costs and increase their profit margins by identifying the best possible vendors for specific products or services. It involves identifying your needs, evaluating those needs based on cost, quality/performance, availability, etc., then finding available suppliers who can provide these products at competitive rates while providing value-add services such as training, support & sales support, etc.
What is Strategic Sourcing?
Strategic sourcing is a process that involves the use of multiple vendors to meet a company’s needs. This can be done in one of two ways:
- By identifying and selecting suppliers based on quality, price, and delivery time.
- By having different suppliers provide various components of your supply chain, such as raw materials or components for final products.
Difference Between Procurement and Sourcing
There is a slight difference between procurement and sourcing. Procurement is a process of buying goods or services from a supplier; it’s how large companies buy things like widgets and office supplies. The procurement department buys these products through an established supply chain that involves multiple vendors.
Sourcing differs from procurement because it involves finding out about new suppliers and taking them on as clients. Smaller businesses don’t have the budget for purchasing large amounts of inventory—they need to find more efficient ways of getting what they need to be done quickly without paying through the nose for it!
Types of Strategic Sourcing
There are two types of strategic sourcing:
- Direct sourcing
- Indirect sourcing
Direct sourcing is when you go directly to the manufacturer or supplier, who then makes your product for you and delivers it at a price below what they would charge if they were doing it themselves. You can also use direct sourcing as an opportunity to negotiate a better price on the product or service in question. The trouble with this approach is that you’re not able to leverage economies of scale by getting volume discounts from suppliers, which means that your costs may be higher than if you had gone through a distributor or other middleman.
Indirect sourcing works differently because it’s more about negotiating with distributors and distributors’ customers so that they pass along volume discounts to you and access to their distribution channels such as factories and warehouses. In addition, indirect sourcing often involves bidding on large orders from manufacturers or suppliers through third parties like catalogs or auctions—which means that there will be fewer intermediaries between you and your supplier than if the product was being manufactured solely for sale through retailers like eBay or Amazon (see Types of Strategic Sourcing).
Benefits of Strategic Sourcing
- Sourcing from a single source can be more efficient than sourcing from multiple suppliers.
- Higher quality, consistent, and predictable performance and service.
- Fewer errors in production due to the elimination of variability and potential problems caused by the use of multiple suppliers.
- Reduced costs associated with managing multiple suppliers, inventory, and logistics which can lead to increased profitability for the business over time.
Strategic Sourcing Process
A strategic sourcing process is a method of acquiring products that align with your business needs and goals. It allows you to identify the ideal suppliers, create an agreement with them, and then manage the relationship over time to ensure that it’s meeting your needs.
The first step in a strategic sourcing process is identifying your target market and its needs. You’ll want to think about what you offer or need, who buys that product or service, and how much of the market you want to serve.
Next comes creating a list of potential suppliers for your target market. You can do this either by conducting research on companies in your area or by surveying potential customers about their preferences. This will help you find out if there are any specific companies that might be able to meet your needs without breaking the bank or causing too much hassle for you as a buyer.
Once you’ve identified potential suppliers, it’s time to negotiate an agreement with one or more of them—and make sure it’s something that works for both parties! Negotiating an agreement means agreeing on how much money each party is willing to pay the other as well as what percentage of each transaction they’ll take
Strategic Sourcing Implementation
Strategic sourcing is a process that helps to improve the efficiency and effectiveness of your business. It can be used to increase customer satisfaction by reducing costs and increasing quality, as well as to reduce risk for the company.
Strategic sourcing involves finding suppliers who can deliver what you need at an affordable price. This means doing more than just looking at price tags; it requires understanding how different products are made, how they’re packaged, and what kind of delivery options are available (and which ones aren’t).
Conclusion
Strategic sourcing is the process of finding and creating your own suppliers to satisfy your needs. It’s a great way to save money and time while still getting high-quality products at reasonable prices. This guide will help you understand what strategic sourcing is all about, as well as how it can help your business make sense of the marketplace so you can get more leads from suppliers without going through third parties like brokers or distributors.
Rahul Asthana has a PhD in Operations Management from the Anderson School at UCLA. He has 25 years of experience in supply chain management, starting his career in IBM working in supply chain operations. He then moved into product management and product marketing of supply chain software while at SAP and Oracle. He manages product strategy and product management at Gainfront. In terms of hobbies outside of work, he really enjoys tennis. Follow Rahul Asthana on Linkedin!
