Every organization has a need to procure the necessary goods and services to conduct their day to day business activities. However, it is vitally important to understand this should not simply be a transactional purchasing activity driven by price alone. Enlightened organizations understand how better managing the investment efficiency of monies spent on goods and services can serve as a continual source of longer-term competitive advantage in the marketplace for themselves and their suppliers. The mutual benefit resulting from appropriately established Strategic Sourcing relationships allows organizations to have dependable sources of supply and expertise, while suppliers have a consistent customer base and perhaps longer-term contracts.
One of the primary goals of Strategic Sourcing is to migrate away from transactional procurement to an enhanced focus on total value, which refers to heightened awareness of the importance of not solely price, but quality, service, and reliability. Strategic Sourcing assists in providing tools and techniques to establish a systematic, consistent, and disciplined process to achieve and maintain competitive differentiation.
Key building blocks to establishing an effective sourcing process are to strategically segment purchases, understand any relevant supply market dynamics, and select the appropriate strategy to best optimize and accomplish the category objectives. All spend is not created equally. A rather simplistic and understandable example would be to think in terms of the various considerations one might have when purchasing a pair of shoes versus buying a home. The associated strategies would be very different. It is quite the same when analyzing organizational spend. Business impact and supply market complexity are the primary determinants. How an organization views any specific category of spend relative to these factors will likewise impact the approach to sourcing. For instance, the sourcing strategies utilized when purchasing office supplies are significantly different than those for legal services. The former is a commodity and price driven while the latter category of spend is more strategic and focused on creating a longer-term advantage. Employing the incorrect strategy results in less than optimal outcomes when seeking a well-matched service provider.
Establishing a Strategic Sourcing approach to procurement assists organizations in better leveraging spend, rationalizing and diversifying the supplier base through the utilization of preferred suppliers, and taking advantage of potential cross business unit synergies. Furthermore, Strategic Sourcing allows for the realization of increased total value and reductions in costs and establishes a supplier base that allows for sustained procurement excellence.