What is strategic sourcing?

Strategic sourcing is a systematic approach to purchasing items needed for your business. It is based on a holistic view of the sourcing process.

When you source in a strategic manner, you do so with four objectives in mind:

  1. Reduce overall costs
  2. Eliminate waste and wasteful processes
  3. Make your organization and yourself more efficient
  4. Provide visibility into what is going on

I’d like to focus on the first goal: cost reduction. Note that I said reduce overall costs. In order to do that, it is imperative to look for an end-to-end sourcing solution that recognizes the importance of technology, legal, financing, procurement and other areas of the business in the buying process.

All too often in business, each department or area has its own goals and objectives and working together has not been either important or mandated. Each department focuses on what is best for them, rather than what is best for the organization as a whole. With strategic sourcing, the needs of all departments and the organization as a whole are used to make decisions.

Technology plays an important role in the source-to-pay continuum. It can be used to guide, consolidate, and rationalize the sourcing process from bidding all the way through to payments and spend analytics, all the while keeping both corporate and departmental goals in mind.

One of the challenges to this holistic approach is that there can be “blockers” within the organization—people or departments that don’t want to adopt the new process. These “blockers” may already have established relationships with local suppliers and want to continue maintaining them. For that reason, it is important that strategic sourcing be championed at the executive level.

Blockers can bury all good intentions; this is why it is important that strategic sourcing be championed at the executive level.

If you do not have the internal expertise to develop and execute a strategic sourcing program, consider turning it over to an outside firm. When selecting someone to assist you with strategic sourcing, look for a company that allows you to harness economies of scale through group purchasing programs. You’ll also want a partner whose credit facility you can harness. Finally, look for a partner that has the right technology in place because that’s what will give you the ability to transform mundane and inefficient processes into a very cost-efficient way of doing business.

Technology enables everyone to improve and track workflow, reduce errors, and eliminate paper. It also allows you to see at-a-glance what you are spending, who is complying with the program and who is not. In essence, it gives you visibility across your entire organization.

Just one last word of caution: We’ve seen the emergence of third-party payment processors. Don’t be fooled into thinking they can provide an end-to-end solution. They are only the payment end of the process. If you select a third-party payment processor you’ve accomplished merely one part of the strategic solution.

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