Strategic Sourcing

Traditionally, organizations have focused their transactions and negotiations only on price reduction, with limited importance given to the commodity and the process. However, a paradigm shift towards strategic sourcing is now gaining visibility, as an increasing number of organizations are waking up to its advantages.

Strategic sourcing is a systematic way of evaluating, selecting, and aligning with suppliers in order to achieve optimum cost for the commodity. This method considers the strategic sourcing destination, the product, and the process in order to achieve an optimized solution.

Unlike organizations following the traditional purchase practices, companies adopting strategic sourcing get the following advantages:

• Improved correlation of the sourcing objectives and the overall business strategy – A periodic analysis of the changing industry patterns and the shift in lucrative sourcing destinations can give an organization the much-needed early-mover advantage.
• Better understanding of a company’s strategic sourcing priorities – This can be achieved by studying buying patterns, vendor mapping and performance evaluations, and analyzing the non-contractual spend.
• Improved spend program management – Companies adopting strategic sourcing consider the total cost inclusive of procurement, maintenance, disposal, and administration of commodities rather than just the purchase price of the commodity.
• Better understanding of the market – Studying the base commodity fluctuations can help companies improve their sourcing plans.

Strategic sourcing can be further improved with the use of mathematical algorithms. Business problems can be rapidly solved by evaluating all possible outcomes and selecting the most suitable ones. More importantly, the shift from traditional to strategic purchasing can help companies streamline their entire procurement process. In fact, traditional organizations would need to adopt strategic sourcing soon in order to stay competent.