What Is Strategic Sourcing? The 7 Steps of Strategic Sourcing

Strategic sourcing is a procurement process aimed at the optimization of securing suppliers at the lowest total cost. It is a common strategy among procurement professionals who are seeking the continual improvement of sourcing decisions. Strategic sourcing minimizes supply chain risks and provides transparency in pricing and profit forecasting. Businesses without the means to perform strategic sourcing in-house can benefit from outsourcing the process to an outside firm. E-sourcing, a form of sourcing automation, can also help streamline the sourcing process.

There are seven steps involved in the strategic sourcing process.

1. 1. Category assessment: The first step of the strategic sourcing process involves taking stock of every spend category across the organization. Prioritizing spend categories is an important part of spend management. Knowing which spend categories are the most important will help you streamline sourcing activities.
2. 2. Supply market analysis: This step in the strategic sourcing process involves analyzing supplier profiles—including their revenue and market share—to help you make an informed supplier selection. Performing detailed market research enables you to understand your position in the market and will help you choose the right sourcing strategy.
3. 3. Strategy development: Risk and cost are the two most important factors in selecting a sourcing strategy. At this stage, it is also essential to establish your business goals, initiatives, and relevant timelines for completing the sourcing process. Additionally, you must build strong communication workflows between all key stakeholders on the sourcing team to ensure synergy between organization-wide spend categories.
4. 4. Solicit bids: Once you’ve conducted the market research and decided on a sourcing strategy, you’re ready to request supplier information. This step is known as a Request for [X] or RFX. An RFX may be a request for proposal (RFP), request for quotation (RFQ), or request for information (RFI). An RFX outlines variables such as service or product specifications, pricing, and legal terms and conditions.
5. 5. Select suppliers and finalize the contracting process: Once you receive responses to your RFX, shortlist suppliers who meet your minimum requirements. If you need more information, arrange interviews with each potential supplier. Rely on members of your sourcing team to conduct these interviews, so they can ask detailed, industry-specific questions.
6. 6. Implement and Integrate: Strategic sourcing follows a holistic approach to supplier management. This means that once you’ve chosen a supplier, they should be involved in the decision-making processes at every level of the project.
7. 7. Evaluate. Once you select a supplier and integrate them into the project, it’s vital to assess their performance throughout the lifecycle of the project. This allows you to quickly identify problems and address them before they negatively impact the project.

As businesses increasingly embrace globalization, strong supplier relationships are paramount to risk management and profitability. Here are a few reasons a robust sourcing strategy is important.

• Higher cost savings: Strategic sourcing is an effective supply chain management strategy for reducing purchase prices and operation costs—also known as total cost of ownership (TCO).
• Alignment between business goals and sourcing activities: Strategic sourcing gives your business a competitive advantage by aligning your business goals with your provider’s goals. Goal alignment can improve efficiency and enable you to be more productive than your competitors.
• Strong supplier relationships: Supplier relationship management plays a vital role in mitigating supply chain risk. Strategic sourcing helps establish long-term partnerships that are aligned with your business needs.

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