What Are Strategic Sourcing Steps?
Strategic sourcing is a supply management tool that delivers significant cost reductions and other benefits, the Institute for Supply Management says. While traditional purchasing focuses on buying at the lowest price, companies operating strategic sourcing aim to get the best products or services at the best value by working with suppliers to improve quality and drive down costs.
Goal Specific
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Strategic sourcing can deliver many different benefits, so it’s important to first establish objectives for the initiative. Companies dealing with several suppliers on short term-contracts may want to reduce purchasing complexity by placing long-term contracts with suppliers that can meet cost and quality objectives. Reducing cost while maintaining or improving quality is a key objective for strategic purchasing. As such, some companies will try to improve opportunities for innovation through supplier relationships based on collaboration, not price.
Categorize Supplies
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Next, assess the importance of your supply categories. Strategic sourcing should focus on supplies that are strategically important to the company’s success, such as engineering components or raw materials. That category of supplies affects the quality or performance of a company’s products, while commodities such as stationery or equipment maintenance are not as strategically important
Current Spending
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The strategic sourcing team should then analyze current expenditures in the priority categories, keeping in mind that using multiple suppliers who won the business on lowest price may not provide the company with the quality it needs. They should review historic spending with current suppliers and obtain forecasts of future demand for supplies. The team should ask internal buyers why they set current product specifications and identify opportunities for improving quality or reducing the cost of supplies.
Potential Suppliers
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Before the formal selection process begins, the team should identify all potential suppliers and assess their credentials and capabilities. By reviewing related websites and company brochures, the team can begin to identify a short list of suitable companies for further assessment. Alternatively, the team can send a brief questionnaire that outlines company requirements in general terms and asks companies to respond with an indication of their suitability. The aim is to encourage suppliers with the right structure and capability to respond and show their interest.
Selection Process
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The team is now ready to issue a formal request for proposals to pre-qualified suppliers that sets out the contract requirements. This document should include product or service specifications, delivery and service requirements, evaluation criteria, pricing structure, and financial terms and conditions. After evaluating the responses and conducting final negotiations, companies can then select its preferred suppliers and begin negotiations over long-term contracts.
Relationship Basics
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Strong collaborative relationships are a key feature of strategic sourcing. Companies work with their chosen suppliers on joint projects to reduce costs or improve quality. They may also set up streamlined ordering and administrative procedures to simplify purchasing processes. Although long-term relationships are integral to strategic sourcing, companies should set up monitoring processes to measure supplier performance against agreed targets.
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Writer Bio
Based in the United Kingdom, Ian Linton has been a professional writer since 1990. His articles on marketing, technology and distance running have appeared in magazines such as “Marketing” and “Runner's World.” Linton has also authored more than 20 published books and is a copywriter for global companies. He holds a Bachelor of Arts in history and economics from Bristol University.