Strategic Sourcing is a critical element of the Supply Chain. It defines the strategy for how and why companies procure and includes the constant evaluation of purchasing activities within an enterprise.
The purpose of Strategic Sourcing goes beyond just procurement, including the definition and assessment of procurement strategy as well as the proactive identification of organizational needs. Strategic Sourcing is differentiated from Procurement based on the proactive approach – defining strategy, establishing and managing organizational spend categories, forecasting requirements and needs, and analyzing past purchases. Some might say that procurement processes are simply carrying out the tactical steps that are defined by the sourcing strategy.
In general, the need for (and value of) Strategic Sourcing as a dedicated function will grow linearly with the size of an organization. However, even small companies – especially those with complexity along the supply chain – should be putting some thought into their sourcing strategy as early as possible. To better understand the impact of Strategic Sourcing, let us itemize and define some of the key elements that define it:
- Category Management. The categorization and management of groups of goods that are similar in nature, such as marketing, facilities, IT, etc. This also includes defining how budget centers for different organizational needs are categorized.
- Needs Assessment. The process of proactively assessing enterprise needs across all departments.
- Cost Analysis. Analyzing the total current costs within each department/category.
- Forecasting. Planning the procurement and delivery of goods and services to address enterprise needs. This is generally done for defined periods of time (annually, for instance) and revisited frequently to monitor performance against plan.
- Market Research. A key part of Strategic Sourcing is having a clear understanding of who provides what. This is critical not only for the procurement of new goods and services, but also with the consolidation of vendors who may have overlapping offerings.
- Analytics. Like how the annual forecast is regularly revisited, all elements of the strategy and associated operations should be regularly assessed: historical purchases, historical performance against forecast, etc. Continued analysis of the spending strategy is one of the defining characteristics of Strategic Sourcing.
- Supplier Management. While procurement generally handles the tactical, day to day encounters with suppliers (purchase order management, for instance), Strategic Sourcing is generally responsible for the management of suppliers at the macro level. Categorizing, consolidating, negotiating, etc.
Companies should adopt processes and technology that can drive efficiency and maximize visibility across the entire Strategic Sourcing spectrum of responsibilities. The sooner an organization addresses these critical processes holistically, the sooner they will achieve the benefits of having control of their spend strategy. Every company should be investigating ways to reduce expenses, increase efficiencies, and empower their business to operate with the tools they need. Strategic sourcing is the mechanism by which these goals can be achieved.
So, whether you’re a small startup with just a handful of vendors or a multinational corporation with global reach – don’t hold off on strategic sourcing. Policies and procedures adopted today will be the foundation of an efficient, cost-cutting supply chain in the future.