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Importance of Strategic Sourcing in Procurement Outsourcing

Strategic Sourcing is a procurement process that evaluates and assesses the purchasing activities of a company on an on-going basis. It is considered to be a part of the supply chain management where the goal is to minimize supply chain costs, while leaving the chain intact.

Strategic Sourcing is a systematic process focused at getting maximum advantage of cost, process, quality and technology, by leveraging the company’s buying power. It is an organized and a collaborative approach to reduce cost while maintaining or improving service and quality. In contrast to traditional sourcing, strategic sourcing involves a continuous relationship between buyers and suppliers which is a beneficial collaboration for both parties. It also increases the visibility of the entire supply chain via true collaboration.

Strategic sourcing has many advantages like cost savings, standardized pricing, access to new suppliers and vendors, increased operational efficiency, set purchasing procedures and a relatively shorter cycle time. Savings from strategic sourcing can come from various ways like Spend Consolidation, Demand Management, Process Improvement, Competitive Bidding, LCCS, restructuring and developing relationships with suppliers.

Strategic Sourcing starts from assessing a company’s spend, looking at the supply market, analyzing the cost, identifying the suitable vendors and suppliers to developing a new sourcing strategy, negotiating with suppliers, implementing the new supply structure and tracking the results. This process is cyclical and is adopted as part of the overall sourcing strategy by many companies.

For a successful strategic sourcing, a company needs to understand and identify the highest impact cost reduction opportunities. A thorough review of the expenditures and collection of spend data needs to be made. After that a savings estimate is made for the project. So a spend assessment forms the first step into viewing a company’s needs, its buying power, and the degree to which they are leveraging that power. An effective sourcing methodology needs to be adopted as a next step. This will address things like product specification and hence use the most ideal sourcing and negotiation strategy for the product category to achieve the lowest cost.

The next step in the process is to a process for supplier participation and contract processes. This can be done by using technology and esourcing tools which greatly assists the process and increases efficiency. After that the selected supplier profile and a strategy is developed followed by the methodology of implementation. This entire process, strategy and methodology is then integrated with operations and tracked on a regular basis.

Strategic Sourcing is used to strengthen a company’s competitive advantage. It is itself a touchstone in outsourcing. It is getting the best services and products at the best value. What sets it apart is its focus on improving and constantly evaluating the buying activities of a company and its flexibility in process improvements.

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