Why are Strategic Sourcing Processes Used in Procurement

The procurement process is a complex series of activities that involve various stakeholders and departments. A strategic sourcing process can make the procurement process simpler, faster, and more cost-effective.
Strategic sourcing processes allow firms to quickly find suppliers who meet specific quality standards at a lower cost than direct sourcing strategies. Strategic sourcing is also known as outsource buying or supplier management. It involves identifying potential suppliers, establishing vendor relationship, negotiation of contract terms and conditions of supply contracts with them.

Strategic sourcing processes reduce costs for purchasing by identifying suppliers that are within the company’s price range or can meet equivalent quality standards in a shorter time frame than direct purchasing from vendors.
In this blog post you will learn about strategic sourcing processes used in procurement and their benefits for businesses, as well as why they are not used by most businesses today and how they could be implemented in modern business environments.

What is the Definition of Strategic Sourcing in Procurement

The definition of strategic sourcing in procurement is the process which involves identifying and using suppliers strategically, who can meet company requirements in a cost-effective way.
A strategic sourcing process helps firms to quickly find suppliers who meet specific quality standards at a lower cost than direct sourcing strategies. Strategic sourcing is also known as outsource buying or supplier management. It involves identifying potential suppliers, establishing vendor relationship, negotiation of contract terms and conditions of supply contracts with them.

This process can reduce costs for purchasing by identifying suppliers that are within the company’s price range or can meet equivalent quality standards in a shorter time frame than direct purchasing from vendors.

What is the Methodology Used in Strategic Sourcing Procurement

The methodology used in strategic sourcing is called competitive analysis. The competitive analysis process begins by identifying the company’s needs and objectives and then looking for suppliers who have the capabilities to fulfill those needs.

Next, the company can ask suppliers about their capabilities, pricing, and delivery schedules. After this information is gathered, a final screening process takes place to find the best suppliers. This process can include the evaluation of key factors such as track record, production capacity, price competitiveness, quality standards, business reputation and location.

In a competitive analysis process, two parties are involved in an exchange of goods or services that is beneficial for both parties. In some cases where companies want to reduce expenses or improve performance with short-term results from purchasing goods or services from external sources instead of in-house resources, strategic sourcing processes are utilized to meet the need in a more cost-effective manner than direct buying..

How does Strategic Sourcing Benefit Supply Chain Management

The strategic sourcing process allows for a faster and more efficient procurement process. It also provides the opportunity to establish important relationships with suppliers, which can lead to significant savings in costs.
A strategic sourcing process enables companies to find quality suppliers that meet their quality standards at a lower cost than traditional purchasing. Furthermore, this is done by the use of various tools such as online marketplaces and advanced search algorithms.

This combination provides businesses with a unique opportunity to find quality suppliers who are within their price range or can match the quality of their products or services in a shorter time frame than standard direct purchasing from vendors.

What are the Benefits of a Strategic Sourcing Cycle for Purchasing Departments

One of the benefits of a strategic sourcing process is the ability to quickly identify suppliers who meet quality standards and suit the company’s needs. Using a strategic sourcing process, suppliers are able to be vetted, reducing the amount of time it takes to find qualified suppliers.

Strategic sourcing processes also allow companies to more easily negotiate contract terms and conditions with suppliers who are managed through this process. This can help businesses achieve cost savings. This can also help businesses improve supplier interactions and negotiate better terms in future contract negotiations.

The final benefit of strategic sourcing is that it helps reduce unnecessary costs associated with traditional procurement strategies. The overhead costs resulting from formal purchasing activities are reduced because there is less time spent on administrative tasks like recording purchase orders, negotiating contracts, sending invoices, paying invoices, registering vendors, etc.

What Strategic Sourcing Approach is Used by the Largest Procurement Teams

Most large companies with procurement departments use a strategic sourcing approach, which often includes the services of specialist procurement consulting firms like Phycomex. Its almost impossible for any internal procurement team to know the the details about every supplier which is  why companies like Phycomex are used as an extention of internal teams. 

Strategic sourcing is the process of identifying, screening, and selecting suppliers that meet specified quality standards at a lower cost than direct sourcing strategies. The types of suppliers targeted in a strategic sourcing process include vendors who are within the company’s price range or can meet equivalent quality standards in a shorter time frame than direct purchasing from vendors.

While some small- to medium-sized companies still rely on direct sourcing (or outsourcing purchasing) to provide goods and services, larger companies use strategic sourcing because it is less expensive and yields better results. Phycomex works with a range of clients spending anything from $250k to over $10M on energy market data. Get in touch to see how we can hel reduce your costs.