Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Strategic Sourcing Process — The Ultimate Guide of 2024
Key take-aways
- A strategic sourcing process is an approach used to align their business objectives and purchasing strategy.
- Strategic sourcing helps companies find the best value and consolidate their purchasing power to get it.
- Strategic sourcing brings a lot of benefits, including increased cost savings, optimized ideal suppliers, and long-term relationships with suppliers.
Many of us are familiar with strategic sourcing. But, we only know it on a surface level.
For this article, we will discuss the different processes in strategic services. We will check how strategic processes can benefit you or your businesses.
After this article, you should be able to deeply understand its process. This will allow you to use it effectively for you or your company. So without waiting any longer, let’s dig into the world of strategic sourcing.
I have created a free-to-download editable procurement process: 7 steps template. It’s a PowerPoint file, together with an Excel file, that can help you with your strategic sourcing process. I even created a video where I’ll explain how you can use this template.
What is Strategic Sourcing?
Strategic sourcing is an approach to developing channels of supply in the company. It develops these channels without adjusting the activities in the procurement cycle.
Strategic sourcing organizes the gathered information of the company. The information gathered will be used to find the best values in the marketplace.
Once it finds the best values, it will use its consolidating purchasing power to get it. The company will now align its purchasing strategy to its business goals.
Nowadays, the need for strategic sourcing has become more vital in every company. The necessity for effective strategic sole sourcing has increased due to the growing demands of companies.
The Process of Strategic Sourcing
Below are the essential steps of strategic sourcing!
1. Profiling
Profiling involves describing the commodities of the spend category. In this stage, you can ask different questions such as:
- What is the current quantity of the materials used?
- Who are the users or customers and where are they located?
- What are the processes used in the company to get their materials?
- Who are the key persons involved in the supply chains?
2. Supply Market Analysis
This process involves identifying your potential local or global suppliers. Supply market analysis studies the cost components of the products or services. Additionally, it analyzes the supplier’s risk and opportunity in the marketplace.
This process covers the analysis of the raw material’s price and labor. Also, it studies the labor costs along with the supplier’s cost for efficient identification of the process and the market.
3. Develop strategy
This process is the step where the company will decide where to buy while minimizing costs and risks.
The company may choose alternative suppliers to decrease the costs of acquiring materials. Additionally, the market condition and competition will be considered in developing a strategy.
4. Select sourcing process
The company will now select what sourcing process is best for them. The company may open a bidding process to select potential suppliers.
They may also request a proposal for this. The request for proposal includes all the terms in acquiring the needed goods or services.
5. Negotiate and select suppliers
Negotiation will start once the company has selected its chosen supplier. The company will discuss all the terms in the proposal.
Once checked, the company will ask for clarifications if there are any discrepancies with the terms. The company will conduct negotiations to get the best deals from their supplier.
6. Integration
In this step, you must inform your supplier to take part in the implementation of the process. This will allow us to streamline the process of acquiring materials and improve the process further.
7. Check your placement and results in the market
This process is the final step of strategic sourcing. Although it may be the final step, it begins the continuous cycle of an effective procurement cycle.
You will know if you achieved your business goals by checking your placement in the market. By checking this, you will know if the outcome has achieved your business goals.
The Importance of Strategic Sourcing
The need for strategic sourcing has grown exponentially through the years. The growing popularity of strategic sourcing is due to the procurement and the supply chain.
Strategic sourcing becomes an advantage to companies to analyze their processes. By analyzing its procurement pattern, the company is able to align it with its business goals.
The process of analyzing suppliers more than their product cost benefits the company. This means that their business goals can match the best possible supplier available in the market.
The heart of strategic sourcing lies in building a long-term relationship with suppliers. This is because companies select their suppliers based on their capability and compatibility. Due to this, an efficient procurement model between both parties is created.
How Does Strategic Sourcing Work?
Strategic sourcing process involves businesses working with their own resources. Some businesses may opt to outsource their procurement model to professionals. This creates a strategic model that fits the company’s goals.
The company can focus more on revenue-generating activities through a strategic sourcing process. It allows the company to analyze all the purchases, costs, and volume of materials.
The strategic sourcing process allows companies to develop sourcing plans. The sourcing plan helps them create a system that contributes to the value of the business.
Benefits of Strategic Sourcing Process
The strategic sourcing process promotes a lot of benefits for the company. Of course, it intends to streamline the processes in the company.
The company may outsource its procurement process to professionals. However, the procurement department can do it if the company does not want to outsource.
Here are the key benefits of using a strategic sourcing process:
1. Increased cost savings
This is the biggest benefit of any company in using strategic sourcing. Employing an exceptional sourcing manager will achieve to give the company the best price possible in the market.
2. Optimized ideal suppliers
Strategic sourcing entails analyzing potential suppliers in your selection list. Through this, the company can select a supplier in terms of its capability and compatibility.
This will allow the company to match its business goals and objectives with the right supplier.
3. Long-term relationship with the supplier
The company selects the best supplier through strategic sourcing. Through this, the company and supplier benefit from one another.
Having a good and long relationship with suppliers surely benefits one another. The supplier will do its best to give the best quality for the company.
Additionally, it can give discounts that will contribute to the financial growth of the company. The company will then pay its supplier for its unwavering support in helping it develop.
4. Improved guidelines
Strategic sourcing is a continuous process in a company. This will allow the company great insights into how each process works.
Most companies nowadays use software to streamline the process. This gives the company better control and improves the guidelines.
Conclusion
Strategic sourcing is an approach to developing channels of supply in the company without influencing other activities in the procurement cycle.
Moreover, when a company does a strategic sourcing process, it allows them to analyze all purchases, costs, and volume of materials. Thus, it imposes a great value on the organization.
Furthermore, the strategic sourcing process promises a lot of benefits for the company with an intention to streamline procurement and supply chain processes.
Frequentlyasked questions
What is the strategic sourcing process?
A strategic sourcing process is an approach used to align their business objectives and purchasing strategy.
Is strategic sourcing important?
Yes. With the rising demands, the sourcing strategy is used more than ever by every company.
Is it used by many companies?
Yes. Companies use this to analyze and improve the process of procurement.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
