Strategic souring is a dynamic procurement process that aims to continuously re-evaluate the purchasing habits and behaviours of a company and through this re-evaluation seeks to bring about continuous improvement to the procurement process.
Within the production environment it is an essential part of a good supply chain management system and it is used widely throughout production industries. It is however, a versatile system and can even be used in non-production areas such as capital or finance industries or even various service led industries.
8 Step Process
There are 8 steps within s strategic sourcing process. First of all it is vital to look at what is being purchased. How much is being spent and where are items purchased from? Without this information it is impossible to know whether the procurement functions are effective.
The supply market now has to be examined and analysed. What is produced and who offers the same kind of items that are purchased. This will show a full range of products that could be used instead of the ones currently purchased.
Next there is an analysis of costs involved and whether or not like for like is offered. (At times cheaper goods may be on offer, but they may be of inferior quality).
From here, a list of suitable suppliers can be drawn up. Suitable does not always mean the cheapest, this process will look at all aspects of the suppliers and their capacity to meet demand, the business processes that they use, their flexibility and so on.
A sourcing strategy can then be devised. This will focus on where items should be purchased, but will also consider the suppliers’ capacity to meet all the needs of the customer in terms of supplying stock quickly, how they can react to changes in demand, whether the supplier can meet quality control standards etc.
The next step is about negotiation with suppliers. Once the customer has established what they will want and how they want suppliers to operate, then they have to persuade the supplier to work in the fashion they are expecting. Not all suppliers may be capable of operating to very exacting levels, so these negotiations have to be entered into in a spirit of openness and transparency. If one party misleads another, then there is a high risk that the strategy will fail when it is implemented.
A new supply structure can then be devised, after the negotiations have been undertaken.
But this is not the end of the process! Once the new structure is in place, it is necessary for the results to be tracked, then analysed and then the assessment process starts again, so that the efficacy of the supply chain is continuously tracked and measured so that the supply chain is efficient.
The ultimate goal of the strategic sourcing approach is to maximise optimisation in the sense of achieving the best possible outcomes for any business practice or process. The most positive outcomes are those that provide the best solution, not just in terms of the costs involved, but the overall most beneficial solution when all critical criteria have been taken into account.
When optimisation is achieved in strategic sourcing, the procurement team will be able to evaluate literally thousands of various procurement options and inputs. So there can be assessments made that take into account factors that affect a particular business. These could include what is happening on the global market, the raw materials market fluctuations as well as different condition that can affect individual suppliers.
The use of strategic sourcing is therefore important for any business that takes the role of procurement seriously. Without strategic sourcing there is a likelihood that procurement is not a positive process and may actually generate waste and poor value for money!