Strategic Sourcing and Procurement Basics

Thursday, September 10th, 2009 at 9:23 am

When it comes to switching to electronic procurement, many companies misuse the concept of strategic sourcing. They actually use the term to mean something else – a sort-of cover up for another corporate move. They use the term “strategic sourcing” in place of saying they are streamlining costs.

Strategic sourcing, in the core essence of the term, pertains to the attempts and efforts of the buyers to be extremely cautious in evaluating and establishing long-term relationship with their suppliers. This, in itself, is the “strategy” that a company can claim – how its buyers create that lasting interrelationship with the suppliers – because it entails cultural reconciliation between the buyer and the supplier. For an interrelationship to become mutually beneficial, either or both parties have to embrace change in attitude, tradition, and perhaps some beliefs. This approach requires profound and far-reaching planning, and other management considerations. The strategic configuration, because of its specific processes, can be considered in practice within a company.

The key to reaching a long-term plan is adopting and forming an operational process that will navigate the procurement group to the right and relevant track. It is critical for the development and implementation of the strategy.

From any company’s statements of income, specifically a manufacturing company, much of the revenue or sales of the business is reduced because of the cost of goods. Most of the time, ¾ of the company’s sales reduction is caused by the requirement to purchase raw materials for product manufacturing. So what can be done? A company can form a team which will serve as the enforcer of procurement strategy. The responsibility of the team is to ensure proper implementation of the operational processes involving supplier relations. Such will absolutely increase the business’ net income.

Adopting strategic sourcing requires critical decision making, hence should be planned out well properly. Long operational processes are expected to be undergone by the company since strategic sourcing is a long-term endeavour. Strategic sourcing does not end and is not achieved by merely using the term with the intention of cutting costs.

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