Strategic sourcing refers to a supply chain management approach that seeks to make formal all the aspects around gathering information so that a firm can leverage its power to identify the best possible value the market can offer while at the same time ensuring it aligns its purchasing strategy to its overall goals. With the proliferation in technology and advancement in the way people communicate, procurement and supply chain processes are evolving dramatically. Consequently, organizations need to gather essential information about what to purchase, who to buy from, and what best prices it should purchase.
It goes further to optimize the sourcing processes and fundamentally reduce the cost of ownership through well-structured market analysis. In addition, organizations leverage the power of building working business relationships with potential suppliers to turn around their purchasing fortunes.
How Does a Strategic Sourcing Work?
The problem with traditional purchasing is its shortsightedness and focus on price alone. Perhaps these are some of the major concerns that strategic sourcing seeks to resolve. This helps an organization to develop an adaptable system that enhances the power of its supply chain and the market value. Here are the steps involves in strategic sourcing:
Analysis of the business needs and an in-depth understanding of the previous spending trend. This will be followed by defining a strategic plan to guide the entire process. Thirdly, the planner needs to collect relevant data and perform a market analysis to help identify or propose a guide on the selection of the most potential suppliers based on the laid down conditions.
Upon selecting the best suppliers, an organization would engage in negotiations with the so chosen suppliers. In addition, it entails a detailed analysis of the performance and remedial action for improvement purposes.
The process varies considerably but many experts agree that the following are the common spets followed in designing a workable sourcing plan:
- Analysis of the product categories and historic spending trends
- Developing a supply sourcing strategy in line with business goals.
- Analysis of the supplier market and creating a formidable supplier portfolio.
- Defining a request for proposal criteria and developing templates for the same.
- Negotiating and selecting the best suppliers.
- Integrating the selected suppliers into existing business processes and bringing onboard new vendors
- Tracking business performance metrics and optimizing the sourcing plan, as may be deemed necessary.
While strategic sourcing is usually an option for large organizations with many suppliers, it can also be borrowed by small and medium-sized firms that wish to leverage its power in streamlining purchasing costs and aligning its goals of the existing supply chain environment.
By following the above steps, any business will be able to develop a robust sourcing plan that uniquely anchors a business to the path of increased profits.