A Step-by-Step Guide to Strategic Sourcing

by Helena Williams
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Modern-day businesses implement strategic sourcing processes to gain leads. In this age of cut-throat market competition, an organization that succeeds in developing an innovative sourcing strategy can hope for success. However, the process of strategic sourcing involves various steps. Organizations need to collaborate with stakeholders in every phase of their operations. Companies should also try to maintain positive relationships with suppliers if they want to reap long-term benefits. Apart from these, organizations should critically analyze their spending and thereby, devising new ways of cost-cutting. Business firms must try to assess market risks while taking steps accordingly.

Steps to Strategic Sourcing

The steps in strategic sourcing operations of organizations are listed as follows:

Research

This is the first step in formulating a procurement strategy. A large number of organizations fail in their procurement activities since they haven’t conducted research meticulously. In this phase, the main focus lies in data collection and data analysis.

At the research phase, organizations need to divide the supply chain into various categories. Most of the time, the various categories are in the form of raw materials, electrical parts, accessories, direct services, and indirect materials. It is better to categorize the spending in the ERP material master. While categorizing the various aspects, organizations have to keep some important aspects in mind. After categorization, risk analysis needs to be done.

Analysis of the supply market

In the second stage, business firms need to scrutinize the supplier market. This will make companies get access to appropriate suppliers. Henceforth, they can decide whom to send requests. Supply market analysis involves four parts, namely, the supplier market analysis, demand analysis, supplier interviews, and category risk level analysis.

Companies also need to determine the scope of their market. In this case, the global, regional, country, and local suppliers must be taken into consideration. Gathering authentic data from the supplier base is of utmost necessity. Thereafter, companies should assess their spending relating to the specific categories. Conducting supplier interviews is another part of the process. Organizations should try to collect data from current suppliers while formulating their procurement policies.

Analyze the sourcing process

This is the most crucial step that can have a far-reaching impact on the sourcing scenario of an organization. In this stage, companies should adopt all possible measures to search the benchmarks for suppliers and products. If a company is successful in identifying the knowledge gaps, it can create a plethora of opportunities. Conversing with stakeholders while asking them open-ended questions can make organizations gain insights about their chosen procurement procedure.

Selecting a sourcing strategy

Organizations have to be careful while selecting a sourcing strategy. The two common procurement procedures come in the form of Porter’s Five Forces and A.T. Kearney’s Purchasing Chessboard. The Five Forces model emphasizes the aspects of industry competition, new players in the industry, the power of suppliers, consumer power, and the threat of substitute goods. On the other hand, the Purchasing Chessboard lays stress on four buying strategies and 16 levers.

Selection of vendors

Firstly, organizations have to evaluate the vendors. After this process, business firms can detect their competency while assessing whether they can work with the vendors or not. In this stage, organizations need to define their requirements to the vendors. Moreover, they should also ask questions relating to address management, sustainability, product, procedures, policies, and cost.

RFQ management process

After shortlisting the vendors, business firms have to challenge their existing suppliers by sending an RFQ. They can also ask the suppliers for a quotation. In this way, companies can get a hold of the best suppliers. This will also help them to get the best value. RFQ management process involves four steps, namely, preparation, tender, awarding, and closing.

Additional improvements

During this phase, organizations search for sustained improvements. It is time to analyze and reflect. Moreover, companies should take all the necessary measures to keep the momentum going.

Strategic sourcing tools

Modern-day businesses use powerful strategic sourcing tools for analyzing their spending, requisitioning, RFX events, and supplier relationship management. Companies use the ERP system to integrate their necessary SRM tools.

Category team selection

Business firms must take care of the fact that every team member is assigned the same amount of work according to their specialization. It is the integrated effort of the team that can make an organization’s strategic sourcing process successful.

No doubt, the sourcing process of organizations is a complex one. If any of the above-mentioned steps is not conducted precisely, the sourcing strategy of organizations will fail. Try to develop a strategic sourcing policy that will make increasing revenues for your company.

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