What is Strategic Sourcing in Supply Chain Management

Strategic sourcing is one of the most crucial aspects of the modern-day supply chain. In layman’s terms, strategic sourcing establishes the parameters and details of “why” and “how” companies can make a continuous evaluation of their purchase activities.

It is also vital to understand that the main objective of strategic sourcing extends beyond traditional procurement. It means strategic sourcing in the supply chain focuses on procurement assessment and organizational needs.

Procurement and Strategic Sourcing: What’s the Difference?

Fundamentally, strategic sourcing is not as same as procurement. Unlike strategic sourcing, procurement processes revolve around the execution of tactical steps within confined parameters of sourcing strategy.

Unlike procurement, strategic sourcing is a dedicated function that has linear growth in an organization. Companies count on their strategic sourcing to make sense of their supply chain complexities. In the contemporary supply chain landscape, you have to put a lot of thought into adopting a robust sourcing strategy at the early stages.

Strategic Sourcing in Supply Chain Management

As the complexity around supply chain processes grows, strategic sourcing has become more essential. In fact, the fundamental approach towards suppliers continues to change at a rapid speed. According to Gartner, 70% of supply chain professionals concur that companies use sourcing suppliers to utilize new forms of technology.

In time, the use of a specific tech service becomes an integral aspect of their business model. The fact of the matter is that organizations depend on their suppliers more than ever. And that’s because strategic sourcing has the power to extract more value from the existing supply base and prevent future disruption for an organization.

Strategic Sourcing Key Components and Best Practices

If you want to understand the essence of strategic sourcing with supply chain context, focus on its best practices and critical elements:

Needs Assessment

In this practice, strategic sourcing points out the process of assessing organizational needs in different departments.

Category Management

One of the key components of strategic sourcing is category management. The idea is to make groups that have similar characteristics.

Remember that these groups can be for marketing, IT, or other purposes. In category management, you also define budget parameters and whether or not they will meet organizational needs.

Market Research

Another important element of strategic sourcing is market research that clarifies key parameters. Market research is crucial throughout the procurement of goods and services. It is also critical when it comes to the consolidation of vendors that may have similar market offerings.

Cost Analysis

This aspect of strategic sourcing analyzes total costs for each category and department in an organization.

Supplier Management

Strategic sourcing takes care of micro-level management of suppliers. It involves consolidating, negotiating, and categorizing suppliers at different levels.

Forecasting

It involves planning and delivery of specific goods and services that meet organizational needs. Forecasting is integral to strategic sourcing that allows companies to make period revisits and monitor performance standards.

Analytics

Like forecasting that prompts you to revisit data, analytics is another similar element in strategic sourcing. It helps you understand the context of operations and through historical purchases, forecasts, and historical performance.

Ultimately, it is a detailed quantitative assessment that paints a clear picture of your spending and serves as one of the quintessential aspects of strategic sourcing.

Spectrum of Strategic Sourcing

In a competitive business landscape, companies need to adopt technologies and processes that can heighten their visibility and boost efficiency across the entire spectrum of strategic sourcing responsibilities. Organizations that adopt a holistic approach towards strategic sourcing are bound to have more control over their total spending.

Companies now investigate different ways to cut back on costs, utilize advanced tools to empower business operations and maximize efficiencies. Strategic sourcing is a perfect mechanism that allows companies to fulfill their complex supply chain goals.

From small startups to big corporations, strategic sourcing will continue to be the center of attention to improve supply chain processes. The right course of action is to adopt uniform policies that can work as a foundation to cut supply chain costs and make processes more efficient in the foreseeable future.

Components of Strategic Sourcing

You can break down key aspects of strategic sourcing to understand its role in the supply chain:

Total Cost of Ownership

TCO or Total Cost of Ownership refers to the initial price of retail purchases. You have to factor this value into your procurement plan to review current expenses and capital investments.

Your capital investments can include rent, warehouse equipment, production costs, software licensing, and building space. Conversely, your ongoing expenses involve maintenance charges of all physical assets. Companies that want to maintain the reputation of their brand focus on responsible strategic sourcing by considering TCO value.

Partnerships and Transparent Supply Chains

In your strategic sourcing plan, you need to review your supplier partnerships to look for better opportunities. The idea is to cut back on the original purchase price and improve the brand’s reputation at the same time. Through strategic sourcing, you can make sure the values of your supply chain are in tandem with the expectations of customers. It’s the best way to achieve transparency.

Inherently, transparent supply chains are the result of delivering and surpassing the expectations of your customers based on previous success parameters. The idea is to minimize or cut out ethical conundrums and enforce a heightened state of transparency.

For instance, it could be enforcing an eco-friendly and fair work environment in warehouses.  But the willingness and ability of companies are crucial to make the strategic sourcing plan more transparent and gain a competitive edge in the market.

Final Thoughts

Modern consumers are worried about the source of their products that often holds off the value for businesses. It makes all the more reason for businesses to take into account strategic sourcing as a way to drive more profitability and make supply chain processes highly efficient.

Today, supply chain managers understand the importance of strategic sourcing and how it helps organizations. After all, strategic sourcing brings out more supply chain transparency, partnership opportunities, and total cost of ownership. With the right focus at the right time, companies can focus on a uniform strategic sourcing plan to achieve these goals.

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