Strategic sourcing is a “strategic procurement” methodology that helps converting the supply area into a key department for the financial balance of businesses. In other words, this concept shows that organizations shouldn’t focus on the low cost of acquisitions only – a thought that lasted for many years – but also on the consequences of purchasing each product and on a strategic relationship with suppliers.

There are other aspects to be considered, in order to make procurement really fruitful and profitable. The purpose of strategic sourcing models is to create value and generate a competitive edge, by choosing and selecting the best business partners. So these models consider several factors in negotiations, such as suppliers, price, lead time and quality, among others, to achieve lasting partnerships that will promote business growth.

What is strategic sourcing?

The strategic sourcing concept has been first used in the nineties, and is a methodology that conducts a full analysis of TCO – Total Cost of Ownership of products and services acquired by a given company. The evolution of such concept over the years resulted in different implementation ways and stages.

Currently, the strategic procurement process is broader and assumes that fostering the relationship with suppliers and taking advantage of opportunities are vital for a successful procurement management.

With this methodology, buyers analyze external, internal, financial and logistics costs, in order to maximize the cost-effectiveness of each purchase, along with quality, agility of operational processes and performance of the production chain as a whole.

See below the key stages of strategic sourcing:

Development of a procurement strategy

While before the procurement area had only the mission of purchasing products and services, the procurement strategy now involves the whole supply chain, with the addition of a strategic sourcing methodology: productivity, quality, price, punctuality and storage, among others. The definition of procurement KPIs is also a procedure that helps measuring the area’s performance.

Market analysis and procurement trends

Staying up to date with the market and following the procurement history help to predict seasonal opportunities and be more assertive in decision making. One of the related procurement KPIs is price evolution – which measures any fluctuations undergone by values, in a given period, during the procurement process.

Supplier management and relationship

Controlling and managing supplier-related challenges – compliance with tax, fiscal and labor rules, for instance – are essential steps to minimize risks in the supply chain. Besides, relationship with suppliers occurs in a collaborative, transparent and sustainable manner within strategic sourcing.

In this post, you have seen that strategic sourcing – one of many methods available on the market – is much more than buying and negotiating products and services.

You have known also that a strategic sourcing process is the ideal way to find the best partners, earn savings and, therefore, achieve better results for your company.

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