May 16, 2023 | Sourcing Strategy
Procurement and sourcing are important aspects that can affect a business’s bottom line and competitiveness. Tactical sourcing and strategic sourcing are two categories of sourcing. This blog will compare and contrast these two sourcing methods.
Strategic sourcing is a proactive, long-term sourcing approach that aims at evaluating suppliers to create strong supplier relationships and cut costs and enhance quality.
It involves selecting suppliers based on a comprehensive evaluation that considers factors like innovation, quality, reliability their sustainability commitment and more.
Strategic sourcing involves scrutinizing the entire supply chain to identify bottlenecks and opportunities. This sourcing approach aims to create sustainable growth for businesses.
Though strategic sourcing requires a greater investment of time and resources it can yield significant long-term benefits.
Tactical sourcing is best suited for short-term, low-risk purchases. This approach is ideal for emergency purchases and those purchases which do not have a significant impact on the bottom line.
It is a reactive approach to procurement that focuses on fulfilling immediate needs. This approach involves selecting suppliers based on price, availability, and delivery time.
Tactical sourcing can be useful in situations where there is little time for planning and analysis. However, it can lead to missed opportunities for long-term cost savings and increased value.
Unlike strategic sourcing, here organizations don’t prioritize the needs of the entire organization. It also doesn’t strive to understand the supplier’s main areas of strength and weakness to make better decisions for the business.
Here are two key differences between the two sourcing approaches:
Tactical sourcing is a short-term, reactive and transaction-focused approach to sourcing to meet immediate needs. And strategic sourcing is a long-term, proactive and comprehensive strategy that takes into account a business’s current and future needs.
Another key difference between the two sourcing approaches is the level of collaboration with suppliers. Tactical sourcing tends to involve less collaboration, and suppliers are often selected based on price and availability. Strategic sourcing, on the other hand, emphasizes building strong relationships with suppliers and working together to achieve common goals.
Choosing the sourcing strategy depends on the size and goals of the business.
Small businesses and start-ups tend to generally adopt a tactical approach to sourcing. They buy goods as and when they need them. These purchasing decisions are determined by pricing and availability.
Larger organizations typically choose strategic sourcing. During procurement, they consider suppliers’ strengths, sustainability aspects, the total cost of ownership (TCO), and price amongst other factors.
While most businesses will need some short-term tactical sourcing, it is, however, ideal to understand the long-term needs of the businesses and be proactive.
A key thing to consider in the long run is the TCO. The TCO is the purchase price of an asset and the cost of operation over its life. TCO factors in costs related to transportation, storage, training and maintenance apart from the cost of an asset. Strategic sourcing can help you lower the TCO, which eventually improves the bottom line.
The right sourcing strategy for a business depends on its size and business needs. Tactical sourcing is effective for short-term, low-risk purchases, while strategic sourcing is effective for long-term, high-value purchases.