What is Strategic Sourcing & Why Does it Matter?
In today’s cut-throat business environment, having a reliable and robust supply chain is a must for the success and sustainability of your business. Supply chain professionals and procurement managers are exploring creative ways to cut down costs, improve the quality of goods, and ensure timely supply.
This is where – strategic sourcing comes into the picture. Whether you’re hearing the term, “strategic sourcing,” for the first time, or if you have heard it earlier but not sure what it means, you’ve come to the right place. In this guide, we delve deeper into strategic sourcing – About strategic sourcing, the benefits, working and more.
Definition of Strategic Sourcing
Traditionally, procurement managers look to source goods at the lowest prices possible. Strategic sourcing services don’t just focus on the lowest purchase price. Instead, it works on securing products at the best possible costs, while also considering other factors like quality, continuity, timely delivery, and more.
It’s a long-term approach that works on refining procurement activities continually, by analyzing the market and aligning business goals with procurement strategies.
How does Strategic Sourcing work?
Strategic sourcing can be handled in-house by trained professional procurement managers. Or a business can outsource the process to a strategic sourcing company, who devises the best strategies in line with business needs.
Strategic sourcing focuses on what the organization buys, from whom it buys, at what price the goods are procured, volumes, and more. The key difference between strategic sourcing and conventional purchasing is that strategic sourcing focuses on the entire procurement lifecycle and not just the initial price.
Benefits of Strategic Sourcing
Strategic sourcing is a win-win situation for both buyers and suppliers. Let’s explore the benefits for both:
Buyer Benefits:
Smarter Business Decisions:
Strategic sourcing helps businesses gather critical data and make informed choices, all of which help the organisation make smarter business decisions.
Seamless and Smooth Supply Chain :
Strategic sourcing helps businesses gather critical data and make informed choices, all of which help the organization make smarter business decisions.
Improved Risk Management :
Since strategic sourcing helps in building better supplier/vendor relationships, it can help organizations identify and resolve problems with the supply chain quickly. For example, if one of your suppliers is having cash flow issues, then you can decide to provide them with an advance working capital to ensure continuity of supplies.
As you can see, strategic sourcing takes a long-term approach to product sourcing. Instead, of just focussing on getting the lowest procurement prices, it helps to build a reliable and trusted supply chain that you can count on at all times.
Supplier/Vendor Benefits:
Strategic sourcing offers significant benefits for suppliers as well.
- Better Cash Flow – Strategic sourcing ensures that you have buyers always. This helps you improve planning and better focus on cash flow management.
- Greater Stability – As we mentioned above, strategic sourcing helps in establishing a closer relationship between the buyer and seller, thereby improving the stability of the supplier’s business.
7 Steps of Strategic Sourcing
Step 1: Identifying and Establishing the Categories
The first step of strategic sourcing is to define the products or commodities that you’re planning to the source. What is the current usage quantity? From where are you sourcing the products? How good is the product quality? And more.
Step 2: Supply Market Analysis
The next step involves analysing the availability. Identify potential sellers – both locally and globally. Evaluate the risks and opportunities. Gather information on various factors like prices, transportation costs, labour costs, etc.
Step 3: Build your Supply Strategy
The next step is to create a customised supply strategy that will help you cut down risk and costs. While building the strategy, you don’t just focus on one supplier, but build a list of alternative suppliers who can provide you with the goods, if your primary supplier has troubles.
Step 4: Choose the Right Sourcing Process
There are dozens of sourcing processes – e-auctions, supplier-vendor contracts, etc. You work on choosing the best sourcing process that meets your needs.
Step 5: Negotiating and Selecting Suppliers
The next step involves interviewing all the suppliers on your shortlist. After multiple rounds of interviews and negotiations, you finalise a shortlist of suppliers, who align with your business goals.
Step 6: Implementation & Integration
Once you have shortlisted the suppliers, you inform them of your decision and start implementing the supply contract.
Step 7: Benchmarking and Tracking Results
The final step of strategic sourcing is critical. Strategic sourcing doesn’t end with selecting the right suppliers. It’s a continuous cycle. You keep on benchmarking and tracking the performance of suppliers to ensure that you get the full value as promised. If a supplier doesn’t deliver, you go back to step 1 again and repeat the process.
Euro Industriel – Your Trusted Supply Chain Partner in India
With years of experience in the industry, Euro Industriel can help you find the right supply chain partners in India. We don’t just focus on reduced costs but ensure that you get the best value when you partner with us.
We can help you source the best components from anywhere in India, and keep your supply chain moving, without any interruption. Our experience and understanding of the market and flexible approach can help you procure quality industry supplies at the best prices. To know more about our services, get in touch with our team today.
