The role of effectively sourcing goods and services from suppliers has become unavoidable as businesses continue to tie together the power of globalization to expand performance. Strategic sourcing plays a vital role when it comes to the competitiveness and cost structure of a business. It can help in improving the value to price affiliation through a continual process of reducing cost while improving the service quality especially in a supplier’s market.
What is Strategic Sourcing?
Strategic sourcing is a holistic approach to developing channels of supply that deliberate all activities within the procurement cycle to get the best possible total cost instead of only the lowest purchase price of those goods.
Strategic sourcing enables businesses to consolidate their purchasing power to secure the lowest possible total cost of ownership and reduce the risk to the supply chain. It requires continuous re-assessment of the business’s sourcing activities, market analysis, and aligning of business requirements and goals with those of the suppliers.
The process views suppliers as crucial value partners and aims to build sustained and collaborative relations. At every stage of the lifecycle, the customer-supplier loop is analyzed to ensure that needs of the businesses are efficiently and continually met.
How does it work?
Businesses can leverage strategic sourcing to make their procurement process less focused on price and shortsighted. Instead, a sourcing plan can allow them to create an adaptable system that contributes to the overall value of the business in the long term. The process starts with analyzing business requirements and historical spending, trailed by drawing a strategic plan, and then steering market analysis and data collection that guides the selection of a list of suppliers.
The process involves working with new suppliers to integrate them into existing processes by using the communication plan. Besides selection and negotiations, strategic sourcing method also includes measuring performance and improving processes continually. It involves tracking the performance metrics and effectiveness of the sourcing plan.
Why is strategic sourcing in a supplier’s market important?
The most obvious benefit of strategic sourcing is reduced total cost, however, the advantages of reimaging the sourcing process can be far-reaching. Below are the other potential benefits of strategic sourcing in a supplier’s market.
Sourcing suppliers with this method and continuous analysis of the evolving market implies that businesses can ensure that they are continually attaining high cost savings. The process also allows organizations to align their component sourcing with their business goals thus increasing their efficiency and minimizing the risk within the supply chains. By optimizing value in all partnerships and streamlining procurement, strategic sourcing reduces costs in the upstream supply chain.
Cultivates valuable partnerships
Today supply chains span across the globe and are much more complex due to digital transformation. Even the consumer is also much more informed and selective. Therefore, for businesses to stay ahead of the curve it is important to build partnerships that are advantageous to all stakeholders in the supply chain. With continuous market analysis, strategic sourcing allows the procurement team to identify areas of growth and supplier associations that do not add value.
The process of strategic sourcing is all about optimizing affiliations with stakeholders across the supply chains. The method takes into consideration suppliers’ flexibility and innovation rather than only looking at low costs. A strong sourcing strategy helps in building rapport with a varied range of multi-tier suppliers. Therefore, in case of any supply chain disruption, a business with good strategic sourcing can fall back on other partnerships. The focus on continuous analysis and improvements leads to improved flexibility to adapt to external disruptors.
Strategic Sourcing as a business practice
Strategic sourcing is a key to the successful supply chain management. The core challenge of supply chain management is removing the barriers between the organization and its suppliers and consumers to ensure customer service excellence, operational costs optimization, and improved financial position, strategic sourcing emerges as a key factor to integrate and support the suppliers into the supply chain effectively.
Supply chain management and strategic sourcing go hand in hand. Global supply chain responsiveness requires knowledge of customer requirements, the partners’ and organizations’ capabilities, and the interpretation of the organization’s needs to suppliers.
Strategic sourcing provides unique contributions to supply chain competitiveness, generating opportunities for establishing better inter and intra-firm relations. With an alignment between sourcing strategies and organizational goals, an organization can effectively outline a path for developing suppliers, cost optimization for the entire supply chain, introducing innovation, and identifying and mitigating risks. By decreasing supply uncertainties, strategic sourcing optimizes supply chain efficiency and effectiveness.