In an increasingly competitive global market, it is crucial to ensure the timely delivery of goods and services and reduce the risk of supply chain disruptions. Strategic sourcing has emerged as one of the key solutions in this regard, helping strategic sourcing companies complete their procurement requirements in line with their objectives.
What is strategic sourcing?
Essentially, strategic sourcing is a company-wide procedure that involves working with every department in the industry in order to streamline the purchasing process and find new ways to improve supply chain management. The tactical approach is undertaken to improve efficiency at all levels by connecting data management, market research, negotiation, spend analysis, and contracting.
A significant amount of research goes into strategic sourcing and requires strategic sourcing companies to take a holistic approach to sourcing rather than focusing on individual departments. The sourcing process includes a thorough analysis of what the organisation buys, from where, how much, and at what price. Strategic sourcing differs from the conventional practice in the way that organisations focus their efforts on the entire lifecycle of the product instead of just the initial buying price.
How does strategic sourcing work?
One of the most significant benefits of strategic sourcing is that it can be customised to match the specific needs of the organisation. That said, the main goal of this practice is to leverage a holistic approach to increase profits. The overall system can be primarily divided into four components, each of which is discussed below.
- Data collection and spend analysis
Businesses can either set up their in-house teams of analysts or work with professional third-party strategic sourcing companies to create a holistic model based on collected data chains. All the existing and potential supplier data is aggregated into one source, allowing organisations to streamline their choice of vendors.
- Supplier discovery and RFx
One of the common best practices of strategic sourcing is the digitisation of all supplier data on a business network. With greater visibility into the supply chain, businesses can compare RFI-RFQ responses and let the suppliers compete for their business.
- Negotiations and contracting
Digitisation and automation remove the burden of redundant and repetitive tasks, allowing businesses to focus on negotiating better deals and improving their products to match the needs of the market. With a strategic procurement model, businesses can focus on tasks that generate revenue.
- Implementation and optimisation
Strategic sourcing companies are inherently faster and more productive. With digitisation, businesses can set up feedback loops to optimise their operations consistently. Moreover, they can evaluate the suppliers from time to time, ensuring that they are always getting the best prices for the products possible.
Strategic sourcing has huge benefits for both the buyer and the supplier. The buyer gets to work on improved guidelines and enjoys a better relationship within the supply chain, ensuring that the future procurement needs are laid out ahead of time. Similarly, suppliers enjoy greater stability, which improves the long-term cash flow visibility.