Strategic Sourcing

There are numerous definitions of Strategic sourcing. Many of these definitions are unhelpful, using either academic or management consultants language to explain what is a straightforward but important, concept.

What makes Strategic Sourcing “Strategic”?

A business or organisation 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 organisation 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 needs.

Business needs could be local or global and as a result of a non-aligned procurement policy, the organisation 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.

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

Most large organisations adopt a strategic approach to sourcing and its foundation is visibility of spend – the detailed and reliable view of what an organisation spends – but for many large organisations, spend data is imperfect and actual sourcing activity is often limited to a few categories of spend only.

A detailed definition of strategic sourcing can be found here

Read More