Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Strategic Sourcing — The Ultimate Guide For Professionals in 2024
Key take-aways
- Strategic sourcing is the strategic approach of locating potential suppliers using automated programs and market research.
- Strategic sourcing prioritizes supplier relationships and emphasizes value over products in supply chain management.
- Strategic sourcing focuses on supplier quality, cost, and partnerships while procurement is transaction-focused.
Whenever you hear the words strategic sourcing, what does it mean for you? We know that the word sourcing means to find a good source for either a material or a service that your company needs, but if you add “strategic” to it, does this mean a continuous process of sourcing but the aim is for improving its quality?
That is what you’re going to find out while reading this article. You will learn what strategic sourcing is all about. You will learn its important steps and its key benefits.
Once you are done with the article, you should now know the difference between strategic sourcing and purchasing. You’ll be drafting your procurement process while using the things you’ve learned in this article.
I have created a free-to-download editable procurement strategy template. It’s a PowerPoint file you can use to create your own strategy. I even created a video where I’ll explain how you can use this template.
What is Strategic Sourcing?
Strategic sourcing is a growing practice among professionals and organizations in the field of procurement. It is an approach to procurement that puts overall value on the relationship with the supplier rather than its provided product or services.
Strategic sourcing is a part of supply chain management and puts emphasis on customized solutions and strategic partnerships.
Moreover, it acknowledges and accounts for the multiple complex factors that affect value. Undoubtedly, it is often seen as a cycle that includes supplier selection, spending analysis, and ongoing engagement.
Its emphasis on creating buyer-seller partnerships promotes accountability, collaboration, and innovation.
The Difference betweenPurchasing and Strategic Sourcing
Before we dive into the key steps & benefits, it is important to understand the difference between purchasing and strategic sourcing.
One of the key differences between regular purchasing or procurement and strategic sourcing is that with procurement, the procurement manager can just pick and use the current list of vendors or suppliers that the company’s been dealing with already for years.
The procurement manager can go and find new suppliers, but selecting and analyzing each supplier for their data is not a priority; the priority for the procurement manager is to make sure that the procurement process itself is working towards the goals of the company.
Procurement refers to the range of procedures and activities that are needed for companies to get the products and services required.
Again, it does involve both strategic and administrative responsibilities but the procurement department is more focused on the day-to-day transactions and processes that are involved with the procurement. Examples of such processes include purchase orders, payments, and invoicing.
As for strategic sourcing, it is also a part of the procurement process and functions to improve the quality of the suppliers involved in the procurement process.
There is a selection among the suppliers and only the ones that can give the company quality supplies for the right costs are considered. The sourcing manager also makes sure that the suppliers are analyzed thoroughly and the supplies checked to make sure that the prices are just right.
The process is all about a continuous process of searching for the right source or vendor of a product. By doing so, the process is improved and re-evaluated for cost reduction, improved stability, and many other benefits.
Not to sound too confusing, but it is a part of the procurement process. It’s designed to help both the sourcing manager and the procurement manager in choosing the right vendor or supplier for the procurement.
In addition, strategic sourcing focuses on the activities that lead up to the actual purchase. This includes analyzing business needs and the marketplace at large.
Procurement always keeps an eye on looking for the lowest price; strategic sourcing however keeps the big picture in mind. Thus, the process employs large sets of data to evaluate other factors, such as good vendor relationships and risk reduction in businesses.
The 8 Important Strategic Sourcing Steps
Now that we’ve talked about strategic sourcing, the strategic sourcing manager, and what the process can do for your company, it’s now time to talk about the steps involved.
Each step will help the sourcing manager in making sure that the sourcing process is done efficiently. These steps are divided into the following:
- Analyzing product categories that are used by the business. Spending patterns, processes, and the departments involved are checked thoroughly.
- Developing a sourcing strategy that is based on the business goals of the company.
- Checking the request for template and criteria proposals.
- Selecting suppliers and negotiating with the said suppliers.
- Integrating suppliers into existing processes.
- Onboarding new vendors that were selected.
- Outsourcing providers if needed.
- Performance metrics tracking and optimizing the sourcing strategy if needed.
The sourcing strategy manager must make sure that the steps involved are followed, analyzed, and tracked. This will help the company make adjustments the next time a different strategic sourcing process is needed for a different procurement process.
The Key Benefits of Strategic Sourcing
For the strategic sourcing manager, the process of strategic sourcing promotes a lot of benefits not just for the procurement department, but for the whole company as well.
Because strategic sourcing is all about businesses outsourcing their procurement process to professionals or having their in-house procurement department work on it, the process should work on creating the best strategic sourcing model.
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In any case, here are the key benefits of using the procedure for your procurement process:
- Increased cost savings – The biggest benefit for most companies that use the talents of an exception sourcing manager. By choosing suppliers that provide the highest value at the right pricing will give a company the ability to continuously achieve higher cost savings.
- Ideal suppliers are optimized – One of the many tasks of the strategic sourcing manager is to find and analyze suppliers. This is key to improving the procurement process of your organization. By analyzing each supplier’s profile and core capabilities, the company is now well-equipped to match their company’s objectives with the right suppliers.
- Long-term relationships built with suppliers – A company that established its sourcing process is one that already has good long-term relationships with its suppliers. Because the company can invest more with suppliers that are chosen specifically because of strategic sourcing, the suppliers, in turn, are more than happy to do business with the company that is paying them good money for their products and/or services.
- Guidelines are improved – Again, strategic sourcing is all about following the same set of methods and processes over and over again until the right source of vendors is selected. The continuous process, in turn, will give the company great insight into how each process works at the end. Since more companies nowadays are using strategic sourcing software to better automate the entire process, this gives the company more opportunities for improving its guidelines.
Become a Strategic Sourcing Manager: Skills & Responsibilities
Behind a successful sourcing process is the strategic sourcing manager. By definition, his responsibilities include selecting, evaluating, and managing vendor partnerships. These relationships are then utilized to solve problems and achieve business goals.
The role focuses on using the principles of strategic sourcing during the procurement process. It is very important for the sourcing manager to carefully factor in the processes involved to influence a vendor’s overall value. Responsibilities of the sourcing manager include the following:
- Lead collaboration projects with stakeholders and internal teams
- Develop policies regarding procurement.
- Analyze procurement data.
- Build ongoing vendor relationships
- Manage the selection of suppliers
- Optimizing the procurement process.
The Best Tactical Sourcing Software for 2024
Because tactical sourcing is part of the procurement process, it is only right for software companies to jump right in. In this year alone, there is a lot of software released for sale and companies are biting into them like sharks in open waters.
Tactical sourcing software can help improve the process by standardizing sourcing requirements. These programs can also provide a platform for collecting information on suppliers, business needs, markets, and products. Sometimes, the software is part of a bigger procurement system. Examples of such programs are procure-to-pay platforms, ERP systems, and supply chain management systems.
Strategic sourcing in supply chain management systems is difficult because of the nature of the business itself; this is usually done by big chains of businesses therefore there is a constant need for sourcing managers to use software that can help them automate the whole process.
There is also a growing demand for “sourcing application suites” nowadays. These programs are unique in that they include a certain level of functionality when used. These programs have separate software modules, but they are often used for spend analysis, contract management, e-sourcing, and supplier relationship management. These programs are very popular because they are not only used by strategic sourcing managers but by procurement managers too. It’s like buying an item or tool that is not only dedicated to just one task but two tasks.
Some of the popular sourcing software brands include Coupa, Ivalua, GEP, SAP, JAGGAER, Synertrade, and Zycus.
Conclusion
As we conclude our exploration into the realm of strategic sourcing, it becomes clear that this practice stands as a cornerstone in the field of procurement, transcending mere transactional processes.
Strategic sourcing, marked by a focus on supplier relationships and overall value, emerges as a cycle encompassing supplier selection, spending analysis, and continuous engagement. Distinguishing it from conventional purchasing, strategic sourcing aligns closely with business goals, promoting accountability, collaboration, and innovation.
Understanding the eight vital steps in the strategic sourcing process is paramount, involving thorough analysis of product categories, development of sourcing strategies aligned with business objectives, supplier selection, negotiation, integration into existing processes, onboarding new vendors, outsourcing if necessary, and ongoing performance tracking and optimization.
The benefits of strategic sourcing ripple beyond the procurement department, influencing the entire company. Increased cost savings, optimization of ideal suppliers, long-term relationships with suppliers, and improved guidelines underscore the strategic value it brings.
The strategic sourcing manager assumes a pivotal role in this process, tasked with selecting, evaluating, and managing vendor partnerships, all while using the principles of strategic sourcing to enhance overall value.
In the rapidly evolving landscape of procurement, tactical sourcing software plays a pivotal role, standardizing requirements, collecting critical information, and contributing to the automation of processes.
Renowned brands such as Coupa, Ivalua, GEP, SAP, JAGGAER, Synertrade, and Zycus offer sophisticated solutions, addressing the complex demands of strategic sourcing managers and procurement professionals alike.
As the procurement industry continues to embrace innovation, strategic sourcing remains a beacon, guiding organizations toward enhanced efficiency, cost-effectiveness, and sustainable growth.
Frequentlyasked questions
What is strategic sourcing?
Strategic sourcing is the process of locating potential suppliers through the use of a strategic approach. It combines using automated programs and market research.
How to do strategic sourcing?
In order to come up with a strategic sourcing process, data gathering and research are necessary. Use the data to find the best possible suppliers.
How is strategic sourcing different from normal sourcing?
With the latter, the process can be done in many different ways. For the former, there is a detailed process that must be followed for success.
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.
