Glossary of Marketing Terms
View GlossariesStrategic Sourcing
Strategic sourcing is a detailed acquisition and supply chain management process that highlights the aligned purchase decisions with an organization's overall strategic goals. The method includes evaluating and analyzing the buying process to successfully save cost, improve supplier relationships and enhance the supply chain.
What is strategic sourcing?
Strategic sourcing is an approach to manage supply chains that organizes the information which is gathered and used for an organization to consolidate the purchasing power to review the best values in the market and align them to business goals. Strategic sourcing aims to work ahead of traditional transaction purchases and work towards a more strategic and proactive approach, which certainly aims to optimize the purchasing process by cost saving, supplier relations, and other factors.
What are the types of strategic sourcing?
The types of strategic sourcing are as follows:
- Single sourcing
- Global sourcing
- Outsourcing
- E-procurement
- Direct sourcing
- Single sourcing: Single sourcing involves partnering with single suppliers, as this approach is typically used when there is strong strategic alignment between the organization and the supplier.
- Global sourcing: Global sourcing involves procuring goods or services from suppliers across the globe to verify and assess cost advantages, grab specialized expertise, and work in the global market by considering the factors such as logistics, cultural differences, and other regular compliance.
- Outsourcing: Sometimes, organizations outsource the procured activities through third-party providers who help identify verified suppliers, negotiate contracts, and manage supplier relationships.
- E-procurement: E-procurement involves automated technology for the procurement process as it helps to improve efficiency by funneling the process and providing data in real time.
- Direct sourcing: This strategy focuses on sourcing raw materials or goods that are directly incorporated into the organization's output. This aims to optimize the supply chain for production materials, components, and quality.
What are the steps of strategic sourcing?
The steps of strategic sourcing are as follows:
- Identify sourcing needs
- Conduct market research
- Develop sourcing strategy
- Negotiation
- Contracting
- Onboarding
- Monitor performance
- Identify sourcing needs: Determine the products, services, or categories that require sourcing based on business needs, demands, forecasts, or gaps in the supply chain.
- Conduct market research: Research the market and determine potential suppliers, gain knowledge about market dynamics, and information about pricing, quality, and capabilities of the suppliers.
- Develop sourcing strategy: Create a strategy that aligns with the organization's goal and objectives and gather information about cost reduction, improved quality, and diversity.
- Negotiation: With the information generated from the analysis, market research, and proposal, negotiate the price of goods with suppliers.
- Contracting: After negotiating with the supplier with the highest cost saving and quality while satisfying the supplier's requirements. Now prepare a contract that provides terms and conditions of the deal that can help you maintain a proper and mitigate potential price and delivery risk.
- Onboarding: Gather information and data needed to establish an organization's verified supplier during the process as it helps to make it easier for companies in the future to do business.
- Monitor performance: This is the end of the process yet the most crucial step to effectively assess how the suppliers perform in relation to the organizations.
Is strategy sourcing supply chains?
Yes, Strategic sourcing is closely related to supply chain management, which aims to optimize the procurement process and supplier selection in order to achieve the best outcomes for the supply chain.
What are the benefits of strategic sourcing?
Various benefits of strategic sourcing are as follows:
- Cost saving
- Improved supplier relationship
- Enhancing quality and reliability
- Risk mitigation
- Access innovation
- Competitive advantage
- Cost Saving: By evaluating spending patterns, negotiating favorable terms, and optimizing supplier relationships, strategic sourcing enables organizations to achieve significant cost savings.
- Improved supplier relationship: Strategic sourcing emphasizes developing collaborative relationships with the suppliers. Organizations can enhance communication and foster innovation by engaging in effective supplier relationships.
- Improving quality and reliability: Organizations can choose suppliers based on their record of delivering high-quality products and services. In-depth evaluation and ongoing supplier performance ensure standards are met consistently.
- Risk mitigation: Strategic sourcing helps organizations identify and mitigate supply chain risks by diversifying suppliers, establishing contingency plans, and monitoring the performance of the suppliers.
- Access innovation: Strategic sourcing encourage collaboration and knowledge sharing with suppliers by engaging them in the product development process and fostering innovation- focused relationship and access to cutting-edge technology.
- Competitive advantage: Effective strategic sourcing gives organizations a competitive edge in the market, enabling them to save favorable pricing and deliver products or services more efficiently.
What are strategic sourcing examples?
Various examples of strategic sourcing are as follows:
- Procter & Gamble (P&G): This consumer goods company has applied strategic sourcing to streamline its procurement processes and improve supply chain performance. It developed long-term relationships with suppliers and collaborated closely with innovation.
- Walmart: As the largest retailer, Walmart uses strategic sourcing to manage its extensive supply chain, which actively collaborates with suppliers and leverages purchasing power to achieve cost savings; their strategies enable them to offer competitive prices to customers with supreme quality.
- Amazon: Amazon employs the strategy to support e-commerce operations by selecting suppliers, favorable pricing, and optimizing supply chain networks to ensure effective delivery to customers.
Difference between: Strategic sourcing vs Category management
Strategic sourcing pays attention to suppliers' selection process and the procurement process's optimization. The main objective is to identify the best suppliers, negotiate favorable terms and achieve cost savings. The sourcing includes practices like supplier evaluation and selection and supplier relation.
On the other hand, category management focuses on the management and optimization of specific product or service categories within an organization. The objective is multiplying the value delivered by each category by getting knowledge of the market, identifying opportunities, and implementing them to meet business objectives.
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