Strategic Sourcing

 Strategic sourcing is a procurement process that evaluates the purchasing activities of a company and is an important component of supply chain management.  Strategic sourcing is often thought to only focus on cost however business objectives (often provided from company leadership) add a layer of complexity to strategic sourcing.  Depending on company strategy, customer needs, organizational goals, and/or the competitive environment, strategic sourcing envelopes various aspects that benchmark the bottom line.

What are the advantages of strategic sourcing?

Advantages of Strategic Sourcing

Procurement managers engaging in strategic sourcing understand that the scope extends beyond the purchase price.  Common pieces of strategic sourcing include under standing demand drivers, procurement practices, inventory practices, internal processes, Internal processes and procedures and operational strategy.

Many businesses don’t know how they can add value for their customers through strategic sourcing nor how to achieve cost savings concurrently. Often, supply chain managers do not understand the complexity associated with aligning strategic sourcing with day-to-day operations. Leadership needs to give clear strategic objectives and a reason to link objectives with procurement.

Many economic factors influence how effective strategic sourcing becomes.  Top consulting firms including McKinsey, Booz Alan, and Deloitte have prepared marketing campaigns about strategic sourcing through clever terminology that would not be understood by most. The economics behind such initiatives are rather straight forward. First and foremost, sourcing in close proximity to demand will lead to increased supply chain value. Second, Strategic partnerships with key manufacturing facilities can pay huge dividends for businesses.

Strategic Sourcing Framework

Strategic sourcing

Supply chain alignment     Cost savings     Increased quality    Standardization and scaling    Increasing buying power while reducing supplier power    Various operational efficiencies

Strategic Sourcing Framework

  1. Category segmentation
  2. Specify business requirements
  3. Supply market analysis
  4. Sourcing selection
  5. Process testing
  6. Negotiation and contractinga
  7. Transition