Strategic Sourcing FAQs

What is Strategic Sourcing?

Strategic sourcing is a holistic approach to managing spend across categories, with the goal of minimizing Total Cost of Ownership (TCO), while reducing supply chain risks, improving analytics and ensuring a continuous improvement in alignment of purchasing strategy to business goals.

Is Sourcing and Strategic Sourcing same?

The general difference between sourcing and strategic sourcing is that sourcing primarily focuses on just supplier pricing, whereas strategic sourcing is a more dynamic and comprehensive approach, with cost being one component, but also considering a hierarchy of other corporate needs, such as assurance of supply, service, quality, innovation, and regulatory compliance – none of which can be sacrificed for lower price alone.

Why is strategic sourcing important?

Strategic sourcing plays a very important role when it comes to the cost structure and competitiveness of a business, by analyzing the Total Cost of Ownership, than just the purchase price. Analyzing high-volume purchases, as well as developing long-term strategic supply partnerships with vendors can have a great impact on lowering costs and improving quality and reliability. Strategic sourcing helps in improving the value to price relationship, by the continuous process of reducing cost while improving service quality.

What are the main steps in Strategic sourcing?

Some of the key steps in strategic sourcing are below. While not comprehensive, this list should give a flavor of what strategic sourcing entails:

  • Develop key spend category profiles
  • Analyze the supply base for key commodities
  • Define business priorities and needs
  • Develop the sourcing strategy
  • Define supplier performance KPIs
  • Detail out the strategic sourcing process
  • Engage with, negotiate and sign up strategic suppliers
  • Implement and integrate strategic sourcing
  • Benchmarking, monitoring and continuous improvement

Can strategic sourcing be applied in all industries?

Strategic Sourcing is applicable to almost every procurement activity, including direct materials, indirect materials, custom commodities, as well as services.

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