Strategic sourcing refers the process an organization uses to obtain the source materials that it requires to operate with a view to its long-term aims and how best to achieve them. This means constantly evaluating and improving procurement activities.
It is achieved in practice by an organization collaborating with its suppliers and by using its purchase power to negotiate the best price and delivery terms possible when procuring source materials as well as working closely with suppliers. This improves efficiency, reduces costs and ensures the quality and reliability of the organization’s output. It streamlines procurement processes and ensures the best quality at the least cost is achieved in a timely manner.
Strategic sourcing aims to develop supply channels at the lowest possible overall cost, not just the purchase price. It is more than simply the purchase itself, in that it includes all aspects of the process that leads to a purchase in the procurement cycle from specifying requirements, evaluating suppliers to final receipt and payment.
It also improves supply chain risk beyond mere compliance with standards and quality for the product being supplied. It can include assessing the stability of the country of origin in which the supplier operates, risks in the mode of transportation, sensitivity of intellectual property rights in certain production processes and other customer-specific requirements.
A vital element of a strategic process involves building strong relationships and trust with suppliers. While supplier operations and capabilities must be assessed as a first ste,p it is worth delving deeper into their potential capabilities. For example, seeing whether there are there value-add opportunities for the product being supplied and whether the supplier has or can provide other competencies that can be leveraged. The approach should be that of a partnership where they are encouraged to collaborate on joint strategies to improve their technology and processes.
Closer relationships can lead to faster lead times, better quality and more reliable order fulfillment. In fact the most competitive advantage can be achieved by aligning supplier and buyer goals as closely as possible to get the desired result through constant and clear communication of what is required and collaborating to make sure it is delivered to those specifications.
By having an overall sourcing strategy, organizations can prioritize performance goals, ensure on-going risk management at all stages of the procurement process and not only assess but work with suppliers to achieve sustainability, flexibility and innovation in the purchasing process.