Strategic Sourcing Refers To The Process Of Identifying The Spend Profile Of An Organization And Its Supplier Base To Ensure Their Business Requirements Are Aligned With The Suppliers.
In contrast, tactical sourcing involves a short-term and traditionally reactive approach towards managing the sourcing activities of an organization. It aims to achieve the lowest possible cost without considering other factors like supplier relationship management, supply chain risk mitigation, etc. Consequently, the focus on building long-term relationships with suppliers and understanding how their core capabilities can meet the organization is minimal as communication with suppliers only occurs when problems arise. While tactical sourcing can bring gains in the short-term, it prohibits sustained optimization of its sourcing activities. Furthermore, compared to strategic sourcing, tactical sourcing doesn’t necessitate large investments in advanced technological platforms and personnel skillsets.
Strategic sourcing involves developing a proactive, holistic, and continuous evaluation and re-evaluation of the sourcing activities in an organization. Strategic sourcing aims to achieve the lowest Total Cost of Ownership (TCO) along with minimal supply chain risk. Hence, it reflects the organization’s relationship with its sourcing partners as a loop instead of a one-way process—an in-depth profile of the suppliers and their core capabilities is developed and periodically aligned to the sourcing requirements of the organization. Strategic sourcing views suppliers as crucial value partners and aims to building sustained, collaborative relations. The customer-supplier loop is assessed at every stage of its lifecycle in order to ensure that the needs of the organizations are continuously and efficiently met. To accomplish this, strategic sourcing leverages spend analysis, supplier evaluation, supplier relationship management, and detailed market research. Strategic sourcing is, hence, a long-term process and for its successful implementation, it needs skilled personnel and relevant technology platforms and tools.
WHY WE NEED STRATEGIC SOURCING?
Now that the concept of strategic sourcing is clearer, it is important to understand its benefits and why it makes sense for more organizations to adopt strategic sourcing. This section covers how strategic sourcing can help organizations around the world.
BENEFITS OF STRATEGIC SOURCING
INCREASED LEVEL OF COST SAVINGS
The most obvious benefit businesses will experience from strategic sourcing would be higher levels of cost savings. By identifying and selecting suppliers that will provide the highest value at the right pricing will enable an organization to continuously achieve higher cost savings. This is even more important as according to Zycus’ Pulse of Procurement 2018, 54% of top procurement professionals have recognized cost savings as a key focus area.
BETTER ALIGNMENT OF SOURCING AND BUSINESS OBJECTIVES
Aligning the sourcing activities of a business to its organizational goals and objectives is at the crux of strategic sourcing. Better alignment allows the business to achieve higher business performance with higher efficiency and minimal supply chain risks.
OPTIMIZATION OF IDEAL SUPPLIERS
In order to effectively implement strategic sourcing in your organization, it is necessary to analyze the suppliers, their profiles, and core capabilities. Once this is accomplished, an organization is equipped with information that will allow them to match their business objectives to their ideal suppliers. This implies highest value-creation at lowest-possible cost.
LONG-TERM RELATIONSHIP BUILDING WITH SUPPLIERS REMOVE MANUAL TASKS
Strategic sourcing helps an organization build long-term relationships with its suppliers. By reinforcing the focus on the core capabilities of the suppliers and assuring the right suppliers for the right sourcing objective, strategic sourcing helps create a synergy between organizations and its suppliers. Sustained relationship with suppliers also implies that when the suppliers are valued and considered in various sourcing decisions; they feel motivated to optimize their performance to meet the organizations objectives.