What is Strategic Sourcing?

Purchase to Pay, P2PThere are numerous definitions of Strategic Sourcing. Most of these definitions are unhelpful, using either academic of management consultants pseudo-intellectual language to explain what is a straightforward, but important, concept.

What makes Strategic Sourcing “Strategic”?

A business or organization does what it does. It provides a service or it makes things to sell. The service it provides or the manufacture of the goods is its core business. It’s reason for being. During the course of it’s business, the organization will have to pay for things including labor, premises, raw materials, services etc. and traditionally, the sourcing of these goods and services was done in response to the identification of an individual business need. Business needs could be local or global and as a result of a non-aligned procurement policy, the organization may have found itself with many suppliers for the same category of goods or services and paying a wide range of prices. Without a strategic approach, no overall view of the sourcing costs and efficiency is taken and the profits of the business are effected.

Strategy Sourcing is an approach to procurement whereby the business needs of the organization are matched with the supplier market. It is much more than simply centralizing procurement. The approach is founded on a detailed understanding of both the spend profile of the organization as well as of the supplier market. This understanding is continually updated in order to deliver ongoing improvements to the organizations sourcing and procurement performance.

Most large organizations adopt a strategic sourcing approach – if only by name. The foundation of Strategic Source is Spend Visibility – the detailed and reliable view of what an organization spends – but with many large organizations, spend data is imperfect and actual strategic sourcing activity is often limited to a few categories of spend only.