From the course: Strategic Sourcing of Suppliers

What is strategic sourcing of suppliers?

From the course: Strategic Sourcing of Suppliers

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What is strategic sourcing of suppliers?

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- What do you understand by the term, strategic sourcing? Strategic sourcing has been around for a while, but it's not universally understood. So let me start by explaining just exactly what strategic sourcing is so we're all on the same page. Many people typically outside of procurement, still think that procurement is a tactical back office function. A bunch of glorified shoppers who find suppliers through one online search, ask three of them for a price, then simply award the business to the cheapest one. This approach assumes that suppliers exist purely to meet an immediate need and don't present any risks or additional value to your business. This might be fine as a tactical reactive approach for low value goods and services that are unimportant to your business, like flowers for your offices, or magazines for your reception area. But imagine for a moment if that was how your company sourced its core raw materials, professional services, or a contract manufacturer, for example. It wouldn't be right for your business or look good for you if a best of three quotes approach brought your really cheap price at the expense of quality, reliability, or sustainability, and so on. That's where strategic sourcing comes into play. Strategic sourcing sees procurement align it's aims to satisfying the requirements of the business, which in turn are based on the organizational strategy. This considers the overall value that your company needs from suppliers such as quality, delivery, service, sustainability, and security of supply, by way of examples. It also takes into account the dynamics of the supply market, such as, what are the supply options available, the level of competition, buyer power, and the levers that you could use to secure the best value for your business. And fundamentally, through strategic sourcing, you'll address the question of whether the product or service specification is right for your business. Strategic sourcing links the satisfying of end customer requirements both now and in the future with a value that can be sourced from the supply base to ultimately meet organizational goals. It's this linking of the sourcing activity to meeting organizational goals, that can potentially elevate procurement from being tactical order places to making a strategic contribution to the overall business. I say potentially, because a strategic sourcing approach is a methodology that has to be adopted by the whole organization, and not just procurement alone. To be effective, it requires the organization to work together, in cross-functional teams, breaking down any silos that exist to make sure that the value lying in the supply base can be extracted, to help the organization achieve its objectives. This means that you'll need the buy-in to a strategic sourcing approach for your business stakeholders. They'll need to see the value that it can bring to their area. How is procurement positioned in your business? Is it considered a tactical back office function? And how could you elevate the profile of procurement within your company?

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