Strategic Sourcing:
The most utilized form of sourcing; a systematic and fact‐based approach for
optimizing an organization's supply base and improving the overall value proposition.
optimizing an organization's supply base and improving the overall value proposition.
What Strategic Sourcing is:
1. Focused on the Total Cost of Ownership (TCO) incorporating customer needs, organizational goals, and market conditions
2. Getting the best product/service at the best value
3. Driven by a rigorous and collaborative approach
4. Addresses all levers for savings
5. Decisions based on fact based analysis and market intelligence
6. A continuous process
2. Getting the best product/service at the best value
3. Driven by a rigorous and collaborative approach
4. Addresses all levers for savings
5. Decisions based on fact based analysis and market intelligence
6. A continuous process
What Strategic Sourcing is NOT:
1. Focused ONLY on cost
2. Getting the cheapest product/service
3. Ad‐hoc activities involving only purchasing
4. Focused on “beating up suppliers”
5. Decisions based on opinion, unjustified preference, or complacency
6. A one‐time project or decision
2. Getting the cheapest product/service
3. Ad‐hoc activities involving only purchasing
4. Focused on “beating up suppliers”
5. Decisions based on opinion, unjustified preference, or complacency
6. A one‐time project or decision
The first step is to identify the set of commodities that may benefit from a Strategic Sourcing implementation.
This analysis can take many forms, but key elements include:
1. Assessing the alignment between customer needs and market capabilities.
2. Analyzing how well current purchasing practice meets cost and performance criteria for all of Sourcing1 clients
3. Identifying savings potential, strategic alignment, implementation feasibility, and other criteria used to assess the products
Once those products are identified, three steps are taken to develop a strategic sourcing strategy:
1. Product Profile Analysis
The Product Profile analysis details spending patterns and trends for the Product usage patterns and high level business needs. The Product Profile is developed through an in-depth quantitative analysis using data from multiple sources.
2. Market Analysis
The Market Analysis defines supply market trends and commercial best practices for the Product Components of this step often include: Analysis of market share, trends, and projections (in both the commercial and government markets) Identification of cost drivers throughout the extended value stream Identification of practices used by commercial firms to lower acquisition costs and to reduce total cost of ownership.
3. Product Strategy Development
The Product Strategy builds and synthesizes the findings of the Product Profile and Market Analyses by explicitly defining a strategy and rationale that can be used to lower costs. The Product Strategy also includes cost savings estimates and implementation plans.
Strategic Sourcing solutions are managed
throughout their life-cycle through ongoing engagement with, the collection and
analysis of detailed usage/ spend data, and the identification of opportunities for
improvement in subsequent solution that are developed in the future.
analysis of detailed usage/ spend data, and the identification of opportunities for
improvement in subsequent solution that are developed in the future.
Benefits of Strategic Sourcing
Strategic Sourcing promotes an effective acquisition system that meets our client’s needs and ensures the prudent use of our client’s dollars within their budget.
Specifically, Strategic Sourcing:
Drives Efficient Client Operations
Provides visibility into spending habits.
Lowers Total Cost of Ownership through data analysis.
Creates Product expertise.
Enables better and more informed decisions by employees.
Minimizes complexity for end-users.
Lowers Total Cost of Ownership through data analysis.
Creates Product expertise.
Enables better and more informed decisions by employees.
Minimizes complexity for end-users.
Improves Vendor Performance
Increases clarity of requirements.
Optimizes supplier relationships.
Encourages new and innovative solutions.
Improves competition & contract structures.
Improves vendor ability to meet performance goals.
Optimizes supplier relationships.
Encourages new and innovative solutions.
Improves competition & contract structures.
Improves vendor ability to meet performance goals.
Supports Administration Goals
Helps clients achieve their savings target annually.
Minimizing redundant contracts & activities.
Increases transparency & accountability.
Minimizing redundant contracts & activities.
Increases transparency & accountability.
When implemented company-wide Strategic Sourcing also encourages department collaboration and allows the company to aggregate requirements and reduce redundant contracting activities.