Strategic sourcing is the process of identifying, selecting, and engaging suppliers in a way that supports a a company’s overall business strategy. The goal of strategic sourcing is to optimize the organization’s supply chain, reduce costs, and improve supplier performance, while also ensuring that the organization is able to meet its quality, delivery, and service requirements.
Strategic sourcing involves a structured and collaborative approach to supplier selection, which typically includes the following steps:
- Analyzing the organization’s current spend: identifying the goods and services that the company currently purchases, and analyzing the cost, quality, and service levels associated with each supplier.
- Identifying potential suppliers: researching the market and identifying potential suppliers that can meet the company’s needs. This may include developing a list of pre-qualified suppliers that meet certain criteria, such as quality, geographic proximity, price, or capacity.
- Leveraging market competition: the heart of strategic sourcing lies in leveraging market competition to learn more about the suppliers, gather market data and trends, gain insight into competitors practices, and obtain detailed proposals for the provision of goods or services.
- Conducting supplier and bid evaluations: evaluating potential suppliers and their bids based on a variety of criteria, such as price, quality, service levels, and capacity. This evaluation serves to build understanding, determine a fit with the buying company’s strategic and tactical needs, and establish a best value negotiating position.
- Negotiating contracts: negotiating contracts with selected suppliers that outline the terms and conditions of the relationship, including price, delivery schedules, and service level agreements. Strategic sourcing negotiating targets transcend simple price negotiations to focus on best value for the buying company.
- Selecting and engaging suppliers: making the final, best value selection, contracting, and beginning the process of supplier management. To realize the strategic value identified through the sourcing process, strategic sourcing must be the beginning of an active and ongoing engagement with the selected suppliers.
Strategic sourcing is an important tool in procurement and supply chain management. It can help organizations reduce costs, improve quality, enhance supplier performance, and achieve strategic objectives. By taking a strategic approach to supplier selection, companies can ensure that they are getting the best value from their suppliers.
In the current procurement and supply chain landscape, the critical question that companies should be asking is: Are we tactically buying or strategically sourcing our suppliers?