Strategic Sourcing— Art or Science?
Although strategic sourcing can be defined in a number of ways, a good start to understanding it is to first identify what it is not. Strategic sourcing is not the purchase of materials and services on an as-needed, day-to-day, hand-to-mouth basis. This is largely transactional buying. Instead, strategic buying is the opposite: a systematic process that directs purchasing and supply managers to plan, manage, and develop the supply base in line with the organization’s strategic objectives—and in a manner, that optimizes the contribution of the supply base to the organization.
Strategic sourcing is a process driven by an identified goal or need and consists of:
• Evaluating current and potential sourcing opportunities and relationships.
• Assessing their value and relevance according to long-term goals and overall business and supply management objectives.
• Formulating and applying actions plans and processes for critical commodities or supply networks.
Ultimately, strategic sourcing is knowing what kind of relationship to develop based on market knowledge, the commodity, and the long-term business objectives. It is a sourcing process whereby organizations choose suppliers in a deliberate, calculated fashion. Selection decisions are determined based on factors such as a supplier’s new product development capabilities and capacity to share information electronically, or the ability for a supplier’s component to differentiate the final product. With strategic sourcing, organizations analyze and decide on suppliers based on the strategic impact of potential suppliers and commodities on the organization or supply chain, instead of simply awarding supply contracts to suppliers with a narrow focus on lowest bid.
Key to strategic sourcing is gaining an understanding regarding the supplier landscape in order to determine the following:
• Who are the suppliers?
• How are they related?
• What is the customer buying?
• Who are they buying from?
• What are the risks?
• How much is spent with each supplier?
• What is the quality of goods purchased?