As things advance and evolve, they become more complicated. In biology, for example, it’s widely accepted that the very first organisms were single-cell organisms, the few arguments being that there was an even simpler organism that existed prior to that of the single-cell-organism. However, as the Darwinian story goes, evolution morphed that single-cell through hundreds-of-thousands-to-millions-of years, eventually resulting in, well, us. Humanity. Even humans, however, have become more complicated and evolved as we’ve advanced. Forming societies, implementing rules, and eventually inventing all of the technology that we rely on so heavily today. In the same vein, procurement has evolved and advanced far past its days of origin, growing in complexity and scope. As such, it’s vital that modern organizations have a strategic sourcing plan in place.
Procurement and sourcing activities have come a long way in the business world. With international corporations that are conducting procurement activities for their entire organization, to the rise of independent firms and small businesses catching up technologically to the larger companies, organizations of all shapes and sizes, in almost every market, need to integrate strategic sourcing into their overall procurement strategy.
What Is Strategic Sourcing
To understand why strategic sourcing is necessary for your organization, and the benefits that implementing strategic procurement will bring, first requires an understanding of what strategic sourcing is.
Sourcing is a procurement activity that involves the finding and acquisition of goods and services that a company requires to operate internally and produce the goods and services they offer to consumers. Strategic sourcing delves deeper into the procurement process by developing channels to acquire goods and services at the lowest reduced cost, regardless of the purchase price.
What this means more specifically, is that strategic supplying expands the scope of cost-reduction. Rather than simply focusing on sourcing goods and services at the lowest-possible-purchase-price, strategic sourcing zooms out to take a look at the procurement cycle in its entirety.
Of course, the purchase price is still a major factor of consideration when it comes to strategic sourcing, but the cost-analysis doesn’t stop there. Instead, it encompasses other cost-factors such as inventory-life-cycle, accounting and finance, and other aspects of the procurement life cycle. Ultimately, this allows an organization more insight into cost-analysis when it comes to its procurement and sourcing activities, allowing for stronger and more informed decision-making.
One of the main goals of strategic procurement is to reduce the total cost of procurement without sacrificing the quality of goods or services or making sacrifices in other areas of the organization.
Why Businesses Need Strategic Sourcing
As outlined above, strategic sourcing is the process of analyzing the procurement-lifecycle and the cost-of-procurement. Specifically, when it comes to the sourcing of goods and services for the organization.
The process analyzes the cost of goods or services sourced through their entire lifecycle, illuminating important data and insights into the organization’s operations and metrics. Essentially, implementing a strategic sourcing aspect to your procurement strategy connects your organization’s leadership and management to better data revolving around cost-analysis. As such, businesses that are implementing strategic sourcing methods are finding new and inventive ways to cut the cost of their procurement department without impacting other areas of concern like customer experience and product quality.
Therefore, it’s really essential for modern business owners looking to stay competitive in an ever-growing digital economy to have an updated and competitive procurement team and procurement strategy. This means not only developing and implementing a strategic supplying tactic that works for your organization but also investing in sophisticated technology and procurement software that will inevitably elevate your operations and streamline procurement activities.
Benefits of Strategic Sourcing
Strategic sourcing can look wildly varied from organization to organization. Especially if you’re switching industries. However, there are some common benefits that arise from implementing a strong strategic sourcing tactic into your procurement strategy. Regardless of entity or industry.
Some of those benefits include things like, higher rates of operational efficiency, better internal communication between procurement phases, and, of course, a reduction in the overall cost of procurement sourcing throughout the entire procurement process.
Recapping Strategic Sourcing
Sourcing has evolved well past its primitive days of putting in a single order at a time, or only sourcing materials for a short period. As businesses grow, their needs grow right along with them – and the more needs a business has, the larger and more important sourcing and procurement activities become. As such, it makes sense that procurement was quickly turned to as a department in which companies often look for cost-savings and continuous improvement.
This is where strategic-sourcing has emerged as a swiftly accepted best-practice. Strategic-sourcing goes beyond looking at the purchase price of a contract, and extends the cost-analysis into other areas of the procurement life cycle, painting a much more comprehensive portrait of an organization’s cost in regards to sourcing and procurement. If you need help forming your own, here’s a seven-step strategic sourcing process by ProcurePort.
Utilizing procurement software in concert with strategic sourcing will not only modernize your procurement team and procurement strategies but will boost your entire business as a whole.
For more information on the many benefits of strategic sourcing, and how implementing a strategic sourcing tactic can help reduce your organization’s procurement cost, keep browsing ProcurePort’s library. ProcurePort is the internet’s premier place for everything procurement, from information and knowledge to software and technology, and everything in between.
