Strategic Sourcing Definition
There is a difference between Strategic Sourcing and Purchasing. Strategic sourcing is a cyclical process of collecting and analyzing information about a company’s buying terms and suppliers’ markets along with individual merchant performance to find the most suitable sourcing partners for a company’s unique business objects.
Strategic sourcing means to perform the least Total Cost of Ownership (TCO) alongside minimal supply chain hazard. Furthermore, Strategic sourcing sees suppliers as crucial partners and intends to establish sustained cooperative relations.
Sometimes, the key purpose of a team conducting sourcing analysis would be increased supply chain resilience, speed of delivery, transparency into their suppliers, or other factors outside of price reduction. It is worth adding that strategic sourcing principles could be successfully applied to evaluating potential outsourcing or consulting partners as well.
The 7 Steps Strategic Sourcing Plan
Developed in 2001, strategic sourcing is the process of continuously improving and re-evaluating the buying activities of a company. Strategical sourcing involves several steps such as analysis of spend or expenditure, market research to identify qualified suppliers, negotiation of price and discounts, and finalizing the terms and conditions in a contract.
Step 1-Category Profiling
Classify the products and the type of investment. What is the quantity currently used? Who are the consumers and where are they located? Where are the methods used and who is involved in the supply chain? All data must be documented since changes may be needed.
Step 2-Suppliers Analysis in the Market
Identify possible new suppliers that have a local as well as a global presence. Research the factors affecting the cost of the product or service and evaluate the marketplace of suppliers for risks as well as benefits. In addition to price estimates provided by the manufacturers, factors such as main raw material, labor, and transportation costs also need to be considered.
Step 3- Sourcing Strategy Development
Next, you should determine where and from whom are you going to purchase while reducing risks and costs. With stakeholders on board, it is important to consider alternative suppliers and market competition.
Step 4- Start Sourcing Process
A company needs to develop a sourcing plan. The strategy will depend on what genuine alternatives there are to the current suppliers, how competitive the supplier marketplace is.
Some organizations may conduct reversed auctions that include live bidding usually under the lines of RFP, RFQs, or RFQs of suppliers where the supplier that bids the lowest price is the winner of the auction.
Step 5- Negotiation and Supplier Qualification
When negotiations begin and the suppliers are selected, manufacturers will ask for clarifications and more information. Conduct several rounds of negotiations with the longlisted suppliers before finalizing them according to the approval process of your company.
Step 6- Communicate and Implement
Notify the qualified suppliers and ensure that they are involved in the process of implementation. The more important a product for your company the supplier provides, the closer your partnership should be. To ensure that the vendor understands what is expected of them, you should integrate them into your strategic discussions to illustrate what is most important to your business.
Step 7- Benchmark, track and improve
KPI stands for key performance indicators that are defined by the company as a metric to track the supplier’s performance regarding the product quality, delivery time, payment terms, etc.
The final step is to benchmark the current status of the product or category, track the outcomes, and ensure that maximum value is achieved.
Circle back to step 1 and analyze if any new suppliers have entered the market and again restart the entire process for different categories of products and services.
Amags Global conducted a strategic sourcing plan for various organizations. We identify suppliers for every company according to its services and select the most suitable ones to increase our customers risks and costs in the market.
