What Is Strategic Sourcing?
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Strategic sourcing is a procurement strategy that is used to make sure that the supply chain is continuously improved. It is in essence, the method of meeting a company’s needs from suppliers through analysing the supply markets and then agreeing suppliers who are geared up to meet agreed objectives.
Introducing Strategic Sourcing
To implement strategic sourcing, it is necessary to analyse the current supply chain (often referred to as the ‘as is’ process). The analysis needs to look at the processes involved in the supply of goods, to assess how goods are secured.
The market as a whole needs to be explored to ascertain who provides supplies, so that all potential suppliers can be identified. This element of the analysis is actually quite complex. Historically the choice of suppliers tended to be focused on price alone, so if they could offer a certain range of goods at a specific price, then they would be selected.
However, choosing suppliers on the basis of cost alone does not take into account other factors, such as delivery times, flexibility, whether they have the internal mechanisms to offer good customer care, react to sudden changes in demand and so on. So when initiating strategic sourcing, all these issues are looked at, to enable a full profile of suppliers to be drawn up. This is not a ‘snap shot’ of what suppliers can offer, more like a biography.
External factors need to be assessed to understand what risks exist. This is an important step and can be a key step in selecting what suppliers get selected. Any supply process has risks and the job of procurement is to manage these risks and to ensure that they are kept within acceptable limits and continuity of supply is maintained.
Nature Of Strategic Sourcing
Strategic sourcing has a strong emphasis on continuously evaluating and improving the process of supply. There is no implementation and then sitting back, waiting for the benefits to happen, strategic sourcing is about continuously working to ensure that the supply chain is as efficient and stable as it can be.
Fundamental to the process is the building of mutually beneficial relationships with suppliers. This is not about the supplier being kept ‘in his place’ and viewed as subordinate, but rather about working jointly and collaboratively, so that the relationship can continue.
Benefits Of Strategic Sourcing
The main benefit cited with regard to strategic sourcing is saving costs. The more that the supplier and the customer work together the greater the savings are. Because the relationship is beneficial to both parties there is an in built incentive to make the relationship work and ensure that the supply chain is continuous and without any interruptions.
Strategic sourcing can take some time to bring about, mainly due to the lengthy analysis that has to be undertaken prior to the strategy being implemented, and it can also take some time to build up good relationships with suppliers. However, once the infrastructure is in place, then the relationship can continue to grow and become ever more productive.
Ultimately strategic sourcing makes the customer happy because s/he has regular supplies that are offered at an acceptable price, whereas the supplier is also happy because s/he has a regular and ongoing customer, enabling them to have financial stability and perhaps more importantly, regular and anticipated cash flow into the business.