How do you fulfill your business goals and make the procurement process seamless in a cost effective-manner without cutting corners? The solution is strategic sourcing!

Beyond data-driven supplier analysis, strategic sourcing helps foster a collaborative buyer/supplier relationship. Keeping in mind the advantages of strategic sourcing and implementing it while investing in procurement software is crucial for your business.

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What This Guide Covers:

• What Is Strategic Sourcing?
• Sourcing Strategy
• Strategic Sourcing vs. Purchasing
• Benefits
• Conclusion

What Is Strategic Sourcing?

Strategic sourcing is a long-term method that implements a systematic approach to supply chain management (SCM) to optimize your purchasing process. It is an organized, collaborative buyer-supplier strategy that analyzes supplier trends and helps source products that perfectly fit your business model.

It helps establish a sourcing strategy focusing on risk and price management and vendor onboarding. Additionally, strategic sourcing automates and streamlines internal processes and helps identify spend categories based on user requirements.

Automation has effectively reduced the complexities associated with strategic sourcing by eliminating manual tasks to expedite the procurement process. From supplier onboarding to enhanced visibility, cost savings and enterprise compliance, automation plays a major role in the strategic sourcing process.

Sourcing Strategy

Now that we’ve established a strategic sourcing definition, let us look into its various aspects, starting with sourcing strategies. Discussed below are the seven steps that help with the strategic sourcing process:

1. Market Knowledge: Conducting thorough market research to identify potential vendors is the first step to running an efficient sourcing strategy.
2. User Requirements: Having a clear understanding of your business requirements based on the quality of products and pricing points helps grant better insight into cost analysis.
3. Shortlisted and Evaluated Suppliers: After creating a supplier portfolio and conducting the initial market research, you can now shortlist vendors and prepare for their onboarding.
4. Bidding Process: You can shortlist vendors by implementing the data-driven methods of request for proposal (RFP) and request for quote (RFQ). Before the final supplier selection, you can always send a request for information (RFI) and automate RFI/RFP creation.
5. Negotiation: After vendor selection, establish terms and negotiate a contract based on purchase points, transaction methods, delivery time-frames, etc.
6. Quality Control: For an improved supplier relationship, implementing a quality management workflow that conducts efficient product assessments would be beneficial.
7. Benchmarking: Conducting routine vendor evaluations, tracking and spend-category profiling ensures continued efficiency in performance and prevents unnecessary hassles.

In addition, SCM software can help you simplify and automate the sourcing strategy process, and the global market is on the rise.

According to Verified Market Research, the global supply chain management market is expected to rise at a CAGR of 10.54% from 2022 to 2030, reaching $41.82 billion.

Determine your supply chain management features and requirements to find a solution tailored to your sourcing needs.

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Strategic Sourcing vs. Purchasing

If you are new to the supply chain field, then words like sourcing, purchasing and procurement might sound synonymous. Despite their similarities, there are some subtle differences. Before diving into the primary functions and benefits of strategic sourcing, let us first understand how it differs from purchasing.

Like strategic sourcing, purchasing refers to acquiring goods, vendors and services. The difference lies in pricing points, supplier value, buyer/supplier collaboration and quality.

To understand further, let’s take a look at the detailed explanations below:

Pricing Points

When it comes to purchasing, it is ultimately cost-driven. The pricing points are inclusive of the cost value. In contrast, strategic sourcing analyzes the supply chain market dynamics and includes the total cost of ownership (TCO).

Supplier Value

Purchasing is a short-term goal focusing on the present and the cost of a single purchase. In strategic sourcing, vetting all of a supplier’s resources is an ideal long-term goal.

Buyer-supplier Collaboration

Purchasing is all about finding the right supplier at a cost-effective rate. However, dealing with expensive vendors can lead to constant change of suppliers. In comparison, strategic sourcing is all about building and boosting supplier relations. Keeping suppliers in the loop from the start and including them in meetings regarding the various steps in the process gives them due importance. This helps boost the buyer-supplier relationship.

Quantity & Quality

In purchasing, quantity gets prioritized over quality. Of course, a quality standard needs to be maintained, but it often gets overlooked by the need for mass volume and discounts. Strategic sourcing isn’t always about getting the largest quantity for your dollar decisions but discovering suppliers that fulfill all your business needs.

After clarifying the key differences, it is also essential to know when to implement either. As you may have already figured, strategic sourcing is expensive and not always feasible for small businesses, where the product turnover could be lower than the finances spent.

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Primary Benefits

The benefits related to strategic sourcing are manifold.

To help you grow your business, let’s focus on the various advantages of strategic sourcing:

Reduce Costs

Long-term cost savings is one of the primary benefits of strategic sourcing. When it comes to cost reduction, fostering improved supplier bonds leads to lower rates in the future. Strategic sourcing helps you discover the best rates and compare and negotiate supplier prices while analyzing the TCO of your software and resources. This aids in securing a constant cash flow.

Boost Supplier Relation

Instead of choosing inexpensive suppliers, strategic sourcing identifies reliable vendors who align with your business goals irrespective of their pricing. It helps build communication and foster the buyer-supplier relationship.

Manage Risks

Other than your vendor’s financial stability, there are various associated risks to consider based on their geographic location. From the items sourced to their mode of transportation, it’s essential to analyze the supplier market and your business’ performance metrics while implementing vendor risk management.

Improved Efficiency

Strategic sourcing eliminates guesswork and uses automation to evaluate supplier cost, capacity and quality systematically. Thus improving supplier development and efficiency.

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Conclusion

Irrespective of enterprise size, strategic sourcing is quickly becoming a part of various industries. In this competitive age, businesses look for that edge that sets them apart. Using automated solutions to implement effective strategic sourcing helps achieve this by mitigating risks, reducing costs and offering an overall ROI surge.

Are you contemplating investing in a strategic sourcing solution but don’t know where to start? Fret not! Check out our procurement requirements template and comparison report as we help you streamline your software selection journey.

How do you leverage strategic sourcing to enhance your procurement processes? Let us know in the comments below!