Procurement is a critical function for all businesses. Therefore, organizations must pay attention to how they structure their procurement process. It is also necessary to align procurement to strategic goals and objectives to avoid unnecessary spending, as well as to ensure that businesses buy what they need at the right time. In other words, they should use strategic sourcing.

What is Strategic Sourcing

The term “strategic sourcing” refers to the continuous re-valuation of the business’s purchasing activities with a viewing of improving how the company spends. Unlike tactical sourcing, which focuses on the short term, strategic outsourcing helps businesses look at procurement holistically. This long-term view of procurement allows businesses to preempt needs and changes. As such, they avoid reactive actions and are better able to assess and cut spending.

3 Main Benefits of Tactical Sourcing

Alignment to Business Strategy

A business that practices strategic sourcing will bring all key stakeholders and business partners to the table so they can discuss needs. The understanding of these needs allows the officer with responsibility for procurement to see the bigger picture and understand opportunities for bundling purchases. Additionally, the business is better able to understand what it intends to spend on and how much of that is necessary.

Better, Long-Term Supplier Relationship

When the organization better understands its needs, which vendors it relies on to meet these needs, and the associated costs, it can make more strategic decisions about how to engage vendors. By bundling purchases, the business will be better able to negotiate with suppliers. It also makes managing supplier relationships easier since the organization will be working from a rationalized (hence smaller) list of suppliers it deems reliable. Additionally, by bundling purchases into a single service contract, the business can get a better view of its end-to-end processes (especially in IT).

Reduction in Unnecessary Spending

Since purchases must support the organization’s goals, it is easier to identify spending waste and purchasing gaps. Cost savings happen in two ways:

  • the business will not buy things that do not advance its objectives; and
  • important purchases do not get overlooked, so the teams do not waste time scrambling to correct the error while losing time going to market or completing tasks.

These are just some of the ways businesses can benefit from approaching procurement strategically. Granted, the benefits of strategic sourcing will vary across organizations based on size and the effort placed on getting the practice right. As such, each business needs to find the best way to apply it.