What is strategic sourcing?

Top view of the shipping containers at the port

Obtaining goods and services can be a challenging task for many organizations, so they rely on strategic sourcing. This is the process of assessing a company’s needs to determine how to obtain necessities as efficiently as possible. In addition to identifying potential suppliers for essential goods—like raw materials, office supplies, and capital equipment—the process can help businesses negotiate and maintain service contracts

Simply put, strategic sourcing is an important tool to help organizations save time and money. When done correctly, it helps ensure you the best possible value for business purchases. The use of strategic sourcing in supply chain management provides a wide range of benefits, including:

  • Improved quality of goods and services
  • Reduced costs
  • Improved supplier performance
  • Improved communication and cooperation among suppliers
  • Increased flexibility in the supply chain

The difference between sourcing and strategic sourcing                                                           

Despite the similarities in their names, these processes have some key differences. Sourcing is simply finding suppliers for the goods or services your business needs. Strategic sourcing is a more comprehensive approach that considers all aspects of the supply chain, from choosing suppliers and establishing contracts to managing those relationships. 

Strategic sourcing creates a more efficient and effective supply chain that makes it easier to consider all factors that affect the cost and quality of supplies, including transportation costs, lead times, and product quality. This level of optimization helps your business get the best value for its money and avoid passing costs on to customers.

The key elements of strategic sourcing include:

  • Cost Analysis: A method for evaluating how much a product should cost based on the cost of raw materials, production costs, and profit margins                                                                                
  • Supplier Management: The practice of ensuring that an organization gets the most value out of the money it pays to its suppliers
  • Forecasting: Entails arranging for the purchase and delivery of products and services to the specified location 
  • Needs Assessment: The process of identifying and establishing how to close the gap between an organization's current and desired condition

Developing a strategic sourcing strategy gives you the power to maintain relationships with your vendors with the goal of making cost-effective buying decisions that protect your bottom line and provide value to your customers. 

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