The Complete Strategic Sourcing Process Explained: Step-By-Step


Strategic sourcing is becoming more common as supply chain and procurement procedures change due to digital transformation. Analyzing what an organization purchases, from whom, at what cost, and in what quantity is essential. Strategic sourcing differs from conventional purchasing in that it optimizes the sourcing process through continual market study and connections with suppliers, emphasizing the total cost of ownership and the original purchase price.

Procurement managers can ensure they purchase the particular products or services required from suppliers who satisfy their delivery and quality standards by employing a strategic sourcing strategy to plan. Strategic sourcing services simplify the process, even though it may seem tricky.

What Is Strategic Sourcing?

Strategic sourcing is a part of a more extensive procurement process that integrates data gathering, spend analysis, market research, supplier negotiation, and contracting. It ends before the goods and services are purchased and paid for. Although strategic sourcing can be tailored to a customer's unique requirements, its primary objective is to increase profitability by utilizing a single, integrated approach.

Strategic sourcing is a process that businesses use to optimize their purchasing and supply chain management to reduce costs, improve quality, and increase efficiency. Through this, companies can focus more on their revenue-generating activities. As part of the sourcing process, all details need to be analyzed. Strategic sourcing differs from conventional purchasing in that it emphasizes the entire life cycle of a product rather than its initial purchase price.

What Is the Sourcing Process?

The sourcing process identifies and evaluates potential suppliers or sources of goods and services that a business needs to operate effectively. Strategic sourcing is concerned with the benefits of cooperation that both parties share. Suppliers contribute to providing a competitive edge with their innovative product inputs, and in turn, they demand your dedication to long-term strategic collaboration in return.

This process involves identifying the needed goods or services, developing a list of potential suppliers, evaluating the suitability of each supplier, and establishing a long-term working relationship with the supplier.

7 Steps in the Strategic Sourcing Process

Let’s go through the strategic sourcing process steps in detail:

Step 1: Need Analysis

The needs analysis stage of the strategic sourcing process involves analyzing the current situation and understanding the needs of the business regarding the goods or services that need to be sourced. This involves identifying the business's specific requirements in terms of quantity, quality, delivery times, and other factors, as well as the budget and other constraints that may impact the sourcing process.

The needs analysis stage is essential in the strategic sourcing process because it helps ensure that the business is identifying the most suitable suppliers and negotiating the best possible terms for the goods or services it needs. This stage may involve gathering and analyzing data on the current supplier base, identifying any gaps or weaknesses in the current sourcing strategy, and developing a clear understanding of the business's needs and objectives.

The needs analysis stage may also involve consulting with relevant stakeholders, such as department heads or key decision-makers, to understand the business's needs and requirements. The strategic sourcing process is aligned with the overall goals and objectives of the company.

Step 2: Supply Market Analysis

The identifying potential suppliers stage of the strategic sourcing process involves creating a list of potential suppliers who can meet the needs of the business. This may include using existing supplier relationships, conducting market research, or using online databases to find new suppliers.

Consider the cost of the goods or services, the quality, delivery times, and the reputation and reliability of the supplier. Consider the location of the supplier, as this can impact delivery times and transportation costs.

During this stage of the strategic sourcing process, it is essential to create a diverse list of potential suppliers to have a range of options to choose from. This helps ensure the business finds the best possible supplier to meet its needs.

Step 3: Develop a Strategic Sourcing Strategy

Making decisions about where and how to buy while lowering risk and expense requires this crucial step. Consider current and potential suppliers to get the most out of our supplier pool. List the selection criteria best suited to your goals, capabilities, and resources after determining your company's purpose and the minimal requirements for suppliers. Form a cross-functional team with essential stakeholders.

Learn To Create A Strategic Sourcing Plan In 7 Simple Steps

Step 4: Select the Strategic Sourcing Process

Soliciting RFIs, RFPs, and RFQs from suppliers is the next stage after completing the supplier market research. This process aids in choosing a supplier and formulating a negotiation plan. For suppliers to fully understand what the organization demands, it is crucial to communicate the explicit requirements of the business as well as the end goals and performance objectives.

Create plans to help your firm achieve its goals and submit a sufficient proposal. The provided information will offer valuable details, like price structure, delivery and warranty terms, product or service specifications, and more. After gathering the data, you can now create criteria for choosing the providers based on your ability to source suppliers.

Step 5: Negotiation

Multiple talks with suitably short-listed potential suppliers are part of choosing a supplier. Use pre-established standards to choose the provider. Both parties must draft and sign the contract. Surprisingly, many organizations miss this vital step. By automating numerous process steps, software solutions make contract management more effective and manageable.

Step 6: Implementation and Integration

Strategic sourcing requires constant communication with suppliers. Ensure that you alert the successful vendors participating in the implementation stage. Your relationship and cooperation should be tighter the more sophisticated your product is. Inform suppliers about the most recent updates and changes by including them in meetings or conversations during the implementation stage.

Step 7: Benchmarking

The supplier selection and onboarding procedure is just the beginning of your strategic sourcing process. The final and most crucial phase is to accurately evaluate how suppliers perform concerning the needs and goals of the organization. Assess performance based on the terms and contract.

It's critical to monitor supplier performance and pinpoint opportunities for development periodically. That helps businesses recognize supplier risks and create plans to prevent supply chain interruptions.

Strategic sourcing is a continuous process rather than an initial step. Market conditions vary quickly because of the changing corporate environment. Therefore, before the contract expires, review all the processes, including expenditure information and market research. If necessary, look into further negotiation.

Streamline Your Strategic Sourcing Process With Kissflow Procurement Cloud

Organizations may build a dynamic procurement management process using the Kissflow procurement cloud, giving them a tactical advantage. Kissflow Procurement Cloud is a software platform designed to assist businesses with managing their procurement processes, including the strategic sourcing process.

Kissflow Procurement Cloud provides a streamlined platform for managing the various steps of the strategic sourcing process, including identifying potential suppliers, evaluating their suitability, negotiating terms and contracts, and establishing long-term working relationships. The platform offers real-time visibility into the status of each step in the process, allowing businesses to track progress and identify any potential bottlenecks or issues.

By automating many of the tasks associated with strategic sourcing, Kissflow Procurement Cloud can help businesses to save time and increase efficiency. Talk to our team and see for yourself!

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