The sourcing process can be complex and time consuming, particularly when organizations focus on securing one-off contracts at the lowest possible price.
Strategic sourcing is a procurement process that focuses on the continuous improvement and re-evaluation of purchasing activities. This allows the organization to reduce costs and improve stability on an on-going basis.
Strategic sourcing is a holistic, systematic, long-term approach to meeting the current and future needs of the organization. The overall goal is to achieve the lowest total cost of ownership throughout the duration of the contract, as well as minimize supply chain risk.
It focuses on the following principles:
A strategic sourcing mission statement will briefly outline your organization’s approach to sourcing. It will help potential suppliers and customers understand more about how your sourcing process works and establish if your values and priorities are a good fit.
A good strategic sourcing mission statement should:
Clearly articulate the goal of the organization – Why does it exist? What does it do? Who are its customers? Base it on the present, rather than what it aspires to be in the future.
Be short and sweet – A mission statement should be short and to the point. Keep it clear and aim to keep it to a couple of sentences.
Be jargon-free – Don’t use jargon in your mission statement. You’re speaking to humans, so sound human.
Be realistic – You should be able to apply your mission statement to every aspect of the procurement process and bring it to life on a daily basis.
Evolving – Mission statements don’t stay relevant forever. Review and update your strategic sourcing mission regularly.
Although strategic sourcing processes will vary from organization to organization, they all typically follow the same overall structure.
The first step is to identify the organization’s needs and the goals for the sourcing strategy. At this stage, potential cost savings and opportunities to increase efficiency can also be identified.
Carry out an in-depth analysis of the supplier market to see who can provide the products, services, or materials you require. Look at both current and potential suppliers, analyzing their performance, offering, and market share to identify the risks and opportunities associated with working with them.
Once you’ve analyzed the market, you can create a portfolio of potential suppliers. It’s best to collect information on more suppliers than you need. This can reduce supply chain risks and avoid disruption – if your chosen supplier is unable to fulfill your requirements, you can return to the list to find another supplier.
Your list of potential suppliers should include information such as:
How competitive is the supplier on pricing?
Their business performance
When seeking information from suppliers, it is important to make the organization’s exact requirements and expectations clear. This will allow them to provide an accurate strategy and roadmap to meet your objectives.
Next, you’ll need to create a strategic sourcing strategy for your organization. This will take into account the organization’s goals, objectives, timelines, and requirements. Potential strategies could include direct purchase, acquisition, and strategic partnership (see below for an explanation of each).
As part of developing the strategy, you will also need to build a communication workflow to ensure that all relevant stakeholders have full visibility.
Keeping your organization’s requirements in mind, prepare a final shortlist of potential suppliers. When you have a shortlist, you can negotiate with each supplier to get the best possible contract and costs.
At this stage, it’s important to remember that strategic sourcing isn’t purely about cost. It’s about building long-term, mutually beneficial relationships.
Inform the chosen supplier, or suppliers, that you have awarded the contract and start to implement the strategic sourcing plan developed in the earlier stages. This will involve changing from any existing suppliers and ensuring there is clear, transparent communication between the organization and the suppliers.
Once the supply chain is up and running, it’s important to monitor the supplier’s performance, consider both KPIs and your requirements. If you identify areas for improvement, communicate openly with the supplier to resolve them.
A strategic sourcing strategy can take various approaches. Identifying the right strategy for your organization will depend on factors such as the competitiveness of the supplier marketplace, the supplier’s risk tolerance, and the overall business strategy.
This is where a Request for Proposal (RFP) or Request for Quote (RFQ) is sent directly to selected suppliers.
This strategy involves purchasing from a desirable supplier.
This strategy involves the organization entering into an agreement with a selected supplier.
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