Strategic Sourcing is the institutional procurement process that tries to continuously improve upon the existing sourcing processes in order to minimize the sourcing risk and costs.
The steps followed in any strategic sourcing process are:
- Assessment of the current spend.
- Assesment of the risks & the costs associated with each spend.
- Identification of current supply base.
- Developing an appropriate sourcing strategy based on Supplier, Cost & Risks.
- Assessing the supply market.
- Negotiating with potential suppliers.
- Institutionalizing the revised supply structure.
- Track results & restart the process.
A number of tools are used to help the strategic sourcing process. The development of powerful soft wares in the current decade has enabled simulation under different supply conditions. A brief description of the tools and how they aid in the above-mentioned steps is described below.
Strategic Sourcing as defined by the procurement leaders network stands as follows:
"Procurement is defining its own culture: processes have had to become sharper and faster to be able to deliver in ever-tighter competitive environments. Sourcing no longer equates to instant cost gratification, but is now defined as a strategic component used to drive maximum competitive advantage.
Strategic sourcing is itself a benchmark. It relates to getting the best products and services at the best value. It is designed to segment external spend and ensure that procurement resources are focused on the most important categories. What sets strategic sourcing apart is its continuous attention to improving and re-evaluating the purchasing activities of a company, thus enabling organisations to adapt to changing market forces."
Systematic strategic sourcing was initiated by General Motors in the 1980s and soon became a common business tool. Many companies worldwide reviewed their purchasing activities and initiated strategic sourcing programmes in response to the rise of China as a global manufacturing hub after its accession to the World Trade Organization in 2001.
