Strategic sourcing can be defined as a sourcing method involving the application of different strategies while sourcing products or services. Strategies are selected based on real-time situations of each acquisition and defined by factors like the value of spend, risk in the category and the supply market character.
What is Strategic Sourcing in Supply Chain Management?
Strategic sourcing services aim to find the lowest-cost suppliers that meet specifications and do not cause much risk. Companies should develop in-depth profiles of potential suppliers. After that, they should compare these profiles to specifications for a long, sustainable supply chain.
Strategic sourcing views its suppliers as valuable partners. It works to sustain a long-term relationship. The customer-supplier loop determines efficiency by assessing the needs of both sides. It comprises sourcing, evaluation, relationship management and market research.
The importance of strategic sourcing lies in the fact that it consolidates the purchasing power. It helps take on a lower cost of ownership and limits the number of risk factors in the supply chain.
Why do Businesses Need Sourcing Strategies?
Increased Level of Savings
The most evident benefit of the sourcing strategy would be higher cost savings. If an organization identifies high-value suppliers, it will be able to achieve higher cost savings. The quality of their products or service will also remain intact.
Adjusting Sources and Business Objectives
Aligning sourcing strategies/activities to organizational goals and objectives can improve business performance. Results include efficiency and reduced risk of supply chain problems.
When finding a supplier, an organization should analyze its core capabilities and profiles. It will give them information that can help them find the right supplier for their business needs.
Long-Term Relations with Suppliers
Strategic sourcing develops a long-lasting business relationship with suppliers. It chooses the suitable suppliers for each goal. It helps save time and effort by focusing on their core capabilities. A sustained relationship also encourages performance optimization on part the supplier.
How to Implement Strategic Sourcing: The 7-step Process
Strategic sourcing can help an organization identify the needs of its current staff. It can then find quality work from unemployed workers. With this process, companies can analyze the source target and the process to find a suitable match for any project.
Identify and Categorize Spend Profiles
The first step in sourcing is to identify the spend areas across all the business areas. The second step is to categorize them as critical. Consider the possible consequences of your selection criteria when making strategic decisions. For instance, if you’re mapping spend categorization into international and domestic, there will be instances that don’t fall into either category.
Building a Sourcing Strategy
The second stage is to build a strategy. It includes the requirements of business units and the goals, objectives, and timeline they implement. It also has a communication workflow to inform all parties of upcoming updates.
Analysis of the Supplier Market
An in-depth analysis needs to be done to understand the current and future suppliers. It evaluates relevant supplier profiles. It is analyzed by revenue or market share and current and upcoming risks and opportunities.
Identification of Selection Criteria and Supplier Information
After supplier market research is complete, the fourth step is to request RFIs/RFPs/RFQs to find suppliers. Organizations need to communicate precisely what they need. Companies should consider clarifying expectations for a successful agreement. The suppliers can then provide accurate information about pricing, delivery times and warranties. These responses from vendors provide excellent data that can make or break an organizational purchase. They need to provide insight into the criteria needed for selection.
Selection of Suppliers and Execution of the Contract
The fifth step is to select providers that offer the best cost savings and quality. These providers select from a list of suppliers. Thereafter, a contract is signed with the new providers.
Periodic Tracking of Supplier Performance
The process of strategic sourcing doesn’t end with supplier selection. It needs to track how the suppliers perform compared to the organization’s requirements and industrial needs. It helps the organization understand supplier risks. It also helps design strategies to mitigate supply chain disruptions.
Implementation of SRM
Strategic sourcing is about building a relationship with suppliers. SRM transforms a customer-buyer relationship into a value-driven partnership. Both supply parties come to the table and can work out innovative solutions to optimize an organizations’ needs.
Creating a sustainable relationship between the company and suppliers is the final step in the strategic sourcing process. It links both entities together to maximize efficiency and find the most optimal way of meeting future requirements.
Causes Triggering the Automation of Strategic Sourcing
Organizations can find suitable suppliers and simplify complexities. They can streamline supplier management by automating the buying process. Organizations that use sourcing software have many departments with sourcing needs. End users within the enterprise save time and effort by collecting demands from suppliers. End users can easily buy goods from providers through the system following government compliance rules.
Increased Visibility into Data Reports
Sourcing analytics platforms provide detailed data about a company’s spending preferences. It also provides details about supplier performance and supply chain risk. Analytical data allows for more informed sourcing decision-making, which improves the visibility of current sourcing activities.
Management of the Key Spend Categories
Automation in strategic sourcing activities makes organizations more aware of their spending categories. It streamlines and controls these like any other administrative task.
Risk Assessment in Supply Chain
Sourcing software is a way for organizations to identify and mitigate various risks that obstruct the supply chain. It improves compliance, expedites business performance, and helps organizations cope with disruptions.
Organizations adopt strategic sourcing to find the best supplier. They do so for their supply chain disruptions. Organizations improve the quality of their supply chain and competitive edge by matching it to the right capabilities. They can get similar quality at a lower cost by using strategic sourcing. With automation for strategic sourcing, business units empower themselves to optimize through the power of automation.