For years, the procurement department has been viewed and managed as an administrative function, with sourcing at arm's length. But, in the past decade, changing competitive landscape has subjected companies to undergo remarkable changes. Today, companies across the globe are under tremendous pressure both in regards to quality and cost.
These demands have increased the interest and made it explicit for organizations how important strategic sourcing is to competitiveness.
Besides meeting these needs, strategic sourcing initiatives do much more. When implemented effectively, strategic sourcing offers tremendous benefits as it consolidates purchasing power, improves partnerships with suppliers, enhances responsiveness, boosts sustainability and innovation efforts, and aligns the work and information flow like teamwork.
But still, strategic sourcing represents a significant and largely untapped opportunity for many companies.
Strategic Sourcing is a process designed to purchase the best products and best services for the best value. It is not a one-time effort but a systemic process that continuously re-evaluates the company's purchasing activities (activities involving acquisition or direct buying of goods, commodities, and services).
According to Reyes-Moro et al. (2003), Strategic sourcing can be defined as a sequence of actions to be performed in order to acquire goods or services that are of strategic importance to a company.
As per Rudzki (2006), it is the practice as "a fact-based, rigorous process that involves substantial internal data gathering and evaluation, and extensive external data gathering and interactions, to select the most appropriate strategy and negotiations approach and ultimately select the right supplier."
Thus, strategic sourcing can be seen as a decisive activity for procurement and supply chain professionals to reduce the total costs of externally purchased materials, products, and services while maintaining or improving levels of quality, service, and technology. This continuous improvement process also integrates customer needs, organizational goals, company culture, and market conditions to answer the most critical sourcing questions of:
To fully understand the concept of strategic sourcing, it is important to draw the lines between what different types of sourcing are, viz. tactical, reactive, and strategic.
In simple terms, sourcing means identifying the new or potential supplier. As a prelude to an opera called procurement, sourcing involves all the activities needed to find the best suppliers for goods and services to prepare the groundwork for effective procurement.
The sourcing process entails the following key activities:
There are six rights involved in strategic sourcing:
Following are the key elements of strategic sourcing:
Strategic sourcing differs a lot from traditional sourcing; some of those ways are listed below:
Strategic sourcing, when implemented well, offers tremendous benefits like:
For any strategic sourcing initiative to succeed, an active commitment by top executives is crucial. Such a commitment includes regular meetings as well as investment in high-quality sourcing tools and software to manage the process well.
Following are the various challenges organizations face when implementing strategic sourcing:
According to sourcing theories — Gadde & Håkansson, 2001 and Burt, Dobbler, & Starling, 2003 — supply strategy is becoming more and more critical for organizational success in many industries. This demand is further intensified with digitization, technology calls, and market liberalization.
Therefore, continuously harmonizing sourcing strategies is pivotal for organizations to factor in the following key advantages:
Besides these, a successful sourcing strategy will also provide:
Ignite Procurement will soon launch Strategic Sourcing as an integral feature to its next-generation spend management solution as a next step on their mission to making strategic procurement easy.
Ignite Procurement's strategic sourcing service will deliver on all the capabilities required to ensure your business can digitize sourcing process to:
Strategic sourcing requires the right mix of skills, expertise, and the right tool to successfully manage the process and magnify results. In addition to this, Ignite's user-friendly and intuitive interface makes it simple and fun for anyone with zero to limited experience of sourcing events to digitize their buying and make things easier.
The first step for the strategic sourcing team is to gather as much information as possible about the spending or analyze the spend to find:
Furthermore, market trends and dynamics that impact these purchases must also be brought to the supplier negotiation table.
Ignite's comprehensive spend analysis does the perfect job of setting the stage for an effective sourcing event by revealing those unique capabilities of your organization that are critical to revenue and offering a competitive advantage. Besides giving you full visibility about your company's needs, our thorough spend analysis lets you assess your total buying power and the extent to which you can leverage that power for meaningful negotiations.
After this preliminary step comes the task of setting the actual sourcing event. The Ignite strategic sourcing process takes into perspective the entire procurement value chain and follows the following step-by-step approach:
There is a lot more to it; when strategic sourcing meets technology, you get a user-friendly interface, intuitive workflow, real-time analytics, insights, and structured, standardized and sharable data. All of this is exponentially beneficial besides freeing your time to focus on things that have a greater impact.
If you would like to learn more about the Ignite Strategic Sourcing feature and how it can make your sourcing initiatives hassle-free, data-driven, and successful, you can reach out to us for a chat or book a free demo.
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