Strategic sourcing is a holistic approach to purchasing/sourcing goods and services. Rather than merely focusing on short-term cost savings, it aligns sourcing with long-term business objectives, looking at the total value/cost of ownership.
Suppose you closed a killer four-year deal to purchase a specific component at an excellent price, yet the supplier offshores manufacturing to Asia the following year. That would dramatically change the deal, wouldn’t it? Strategic sourcing avoids this type of scenario, as it looks beyond purchase price and bases sourcing decisions on the total cost of a product or service throughout its lifecycle. Of course, this is a far more complex story. Big data, analytics, smart software and human relationships can all help.
The old-school procurement approach, which focuses solely on getting the most competitive price possible, is on its way out. New market requirements such as just-in-time delivery and total quality management, as well as competition from outsourcing, commoditization and globalization, urge companies to adopt a more strategic approach to purchasing. This approach includes taking into account:
The power of collaboration
This overall approach requires extensive collaboration: purchasing teams have to move from their islands and work across divisions and geographies. Moreover, it is critical that they work together with suppliers – directly or through procurement platforms – as well to identify opportunities.
It’s all about the facts
More than good relationships, insight will underscore the success of strategic sourcing initiatives. Facing an ever-increasing quantity of materials, suppliers and contracts, sourcing managers need real-time information, like spend analytics, product quality data, supplier scores, etc., to make the right decisions about which suppliers to choose. Enter big data.
Software can then facilitate the approach by standardizing sourcing requirements and providing data technology that facilitates the sharing of information about products, markets and business needs – to make better decisions faster.
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