Strategic sourcing is a fancy way of saying “shop smarter.”
In many ways Strategic Sourcing can be compared to how people shop for everyday items. A gallon of milk sold at a convenience store costs more than the same gallon sold at the supermarket. The reasoning is simple; the convenience store is likely open 24 hours a day, making it easier to buy milk than the supermarket.
Most people only buy items like milk at a convenience store when it is late, they are in a hurry, or they are far away from a grocery store. The stores take advantage of that immediate need to charge a higher price.
The same thing happens in the procurement world.
Strategic sourcing is an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best values. It serves as a roadmap to procure the goods and services the organization knows it needs ahead of time, allowing procurement managers time to find the best price, instead of waiting until there is an immediate need.
“Strategic sourcing can be the bedrock for deep change within a supply chain that leads to better financial gains,” writes the Strategic Sourceror. “With all of the necessary tasks facing an organization, improving procurement and sourcing practices is the effective way to work toward better business.”
By planning ahead with a strategic sourcing setup, procurement leaders can not only get the best price, but they also can ensure that they purchase the exact goods-services they need from suppliers that meet their quality and delivery requirements. While this may seem like a daunting process, strategic sourcing software and strategic sourcing services can make the process incredibly easy.
Strategic Sourcing Benefits
Strategic sourcing software provides organizations with a number of benefits, especially if they employ a procurement software system to help manage the operations. Let’s look at some of the more important benefits strategic sourcing can provide.
Cost. This is the primary reason organizations are drawn to the idea of strategic sourcing. Procurements officials can negotiate lower unit prices for high-volume purchases thus reducing the cost of goods and services. This, in turn, allows the business to keep the price of their goods down and increase profit. Suppliers like this arrangement as well because they can sell a significant portion of their output, making it easier to make long-term plans and keep long-term cash flow visibility. While costs usually refer to goods, the same can be said for services as buying core needs through a strategic sourcing model can provide savings.
Supply Stability. The process helps build stable supply partnerships so organizations do not end up in a situation where they need something and do not have it. Not having the proper goods or services on time can leave businesses in a bind that could ultimately hurt the quality of their product and hurt relationships with customers. Strategic sourcing ensures that future procurement needs are laid out ahead of time, avoiding potentially dicey situations that could harm the business’s reputation or bottom line.
Risk Management. It can help reduce the amount of risks companies face with their supply chain. Close supplier relationships can help companies identify and resolve potential problems quickly. For example, if a supplier is having cash flow problems, a primary customer may advance some working capital to allow it to continue operations. Strategic sourcing increases the communication between businesses and their suppliers, ensuring that there are no surprises between the two. This type of working relationship is beneficial to both sides.
Organizational Excellence. The process forces business leaders to think about the long-term future. Strategic sourcing allows them to make long-term plans and step away from the day-to-day grind that can sometimes consume leadership. Strategic sourcing helps businesses prepare for the future for different scenarios, both good and bad.
Strategic sourcing offers a lot of benefits for both large and small businesses. It is simply a smarter way to procure. As businesses become more mature, they will want to establish strategic sourcing practices to greatly improve their supply chain management. Working closely with suppliers is incredibly important for businesses, and strategic sourcing serves as the best way to consistently do that.
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