Strategic Sourcing is an approach to developing supply chain management that ensures the timely delivery of goods and services by the company’s business objectives while decreasing supply chain risk and cost.
The process formalizes the way of information gathering and uses it to help the organization to use its consolidated purchasing power to find the best possible values in the marketplace to align the purchasing strategy.
Today, CloudVandana will give an overview of strategic sourcing and its benefits.
Strategic Sourcing is expanding due to its popularity. It requires analysis of the buying process of an organization, its source of buying, its price, and volume. It is different from conventional purchasing as it emphasizes the initial purchase price to focus on the total cost of ownership and optimize the sourcing process through ongoing market analysis and building relationships with suppliers.
The Application Of Strategic Sourcing
Businesses can use this process to make the processes less shortsighted and focused on price. A sourcing plan can allow them to develop an adaptable system that contributes to the overall value of the business. The process begins with analyzing business requirements and historical spending, outlining a proper strategy, and then conducting data collection and market analysis to guide a roster of suppliers.
Strategic sourcing involves measuring performance and improving the process. Strategic sourcing is practiced by large organizations with many suppliers.
Strategic Sourcing Steps
This process can be segmented into seven main steps. Let’s have a look at the stages.
1. Identification And Categorization
To initiate the strategic sourcing process, the spend areas existent across all the business areas in the organization should be identified. Categorization helps in prioritizing the sourcing activities for each spending area.
2. Building a proper sourcing Strategy
In this step, a strategy should be built on how each categorized to spend area will be approached. The requirements of the business units should be identified.
3. Analysis Of The Supplier Market
This step is to execute an in-depth analysis of the current and future suppliers to understand and evaluate relevant supplier profiles. This includes analyzing the revenue or market share of suppliers to understand their market standing and industrial performance along with the risks and opportunities.
4. Request For Supplier Information
This step is very important to communicate the specific requirements of the organization.
5. Selection Of Suppliers And Contracting Process Execution
After identifying the selection criteria, the following process is to choose the suppliers who can offer the highest cost savings.
6. Measurement And Periodic Tracking
This step is t effectively measures how suppliers perform the requirements and objectives of the organization. It is essential to engage in periodic tracking of supplier performance and identify areas for improvement.
7. Implementation Of Supplier Relationship Management
The seventh step is implementing supplier relationship management which makes the relationship between the organization and suppliers instead of a one-way process.
After discussing the steps, let’s look at the benefits of strategic sourcing.
1. Improved Cost Saving
A proper sourcing strategy can save organizations money in various ways. Organizations can identify selecting suppliers that offer maximum value. Negotiation can be done for lower unit prices against high-volume purchases.
2. Risk Mitigation And Minimization
By analyzing the total spending and value delivered by suppliers, businesses can carry out quality, financial, supply, and customer support risk assessments. After this identification, a strategy can be created to mitigate and minimize the risks. In addition, building close relations with the suppliers can also eliminate the disruptors in the supply chain.
3. Continuous Improvements
It is a sustained cycle of improvement, where managers can identify areas of improvement. It allows stakeholders to make informed decisions for items such as the future development of the business model and capitalizing on market opportunities.
4. Better Alignment Of Business Objectives
The sourcing activity falls in line with the business objectives. So it becomes easier for organizations to deliver improved performances and enhanced efficiencies.
5. Optimization And Recognition Of Suppliers
Strategic sourcing highlights analyzing the suppliers and their capabilities to profile them. Through this system, organizations can select the best-suited suppliers for them.
6. Strong Relationship With Suppliers
Building a strong relationship with suppliers help organizations to build trust and brand value. When suppliers feel valued, they deliver as per the organization’s objectives.
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Digital Marketing Manager at Cloudvandana Solutions