Strategic sourcing is where procurement identifies and creates value for the enterprise. The whole procurement process connects data gathering, spend analysis, market research, negotiation, and contracting.
No two organizations are the same. Strategic sourcing can be highly customized depending on the enterprise’s specific needs. However, its primary goal is to leverage a single, integrated system to increase profit margins.
Basically, strategic sourcing is a means to supply chain management that can formalize the way information is gathered and utilized so that the enterprise could utilize its consolidated purchasing power to identify the potential values in the marketplace and accommodate its purchasing strategy to the enterprise’s goals.
Strategic sourcing is rapidly growing in prevalence as digital transformation is prompting the supply chain and procurement processes to develop. It needs an in-depth analysis of what enterprise purchases, at what cost, from where, and what volume. Strategic sourcing is slightly different from traditional purchasing as it places significance beyond the initial purchase cost to focus on the total cost of ownership and streamlining the entire sourcing process via ongoing market analysis and creating better relationships with the vendors/suppliers.
Advantages of Strategic Sourcing
- Improves long-term supplier relationships
- Offers efficiency and systematic approach
- Reduce supplier risk
- Minimize direct and indirect costs
Strategic Sourcing Process
- Understanding the category
- Know the supply market
- Create a sourcing strategy
- Choose a suitable sourcing process
- Choosing a vendor and negotiating terms
- Implement & integrate
- Reporting & tracking results
Strategic Sourcing and Procurement
Enterprises can deploy strategic sourcing strategies to optimize the procurement process and focus on cost. Now this sourcing approach could let the enterprises develop a flexible system that can contribute to the overall value of the organization in the long term. The entire process starts with analyzing the enterprise’s requirements and historical spending, followed by drafting a strategic plan, and then administering information gathering and market analysis that oversees the selection of a list of vendors.
Once choosing the vendors and negotiating terms are done, the process continues with measuring performance and enhancing the process continually. Organizations deploy strategic sourcing when they have too many vendors to manage. Strategic outsourcing is possible for enterprises that want to delegate the entire process to professionals.
Strategic Sourcing Management
Strategic sourcing management’s primary goal is to enhance the quality and service while minimizing the total cost of purchased materials, products, and services. In other terms, strategic sourcing management is an approach to make private contracts with vendors to accomplish business goals as a result of the assessments to optimize price and productivity.