Sourcing Strategy. 7 Step Sourcing Process (with a downloadable guide)
Sourcing is a core step for profitability, so having processes and protocols in place ensures that approved suppliers are efficiently connected to the right opportunities within your company. As businesses come in all shapes and sizes, it’s challenging to define a sourcing strategy that will fit everyone. However, by following these 7 easy steps for an effective sourcing process, you will be able to develop the strategy that best fits your business needs.
But first, let’s start with the basics.
What is sourcing
Not to be confused with purchasing, sourcing is the stage that comes before any purchases are made. Before you can procure supplies, you must first find, select, and approve suppliers.
Sourcing is the process of obtaining vendor information, requesting quotes for new products, determining the lead time, pricing, minimum order quantities, and so on. Although you only need to do this once for each supplier or product, it’s important to always have backup suppliers.
Before you begin a sourcing process, you must first assess your purchasing needs, map out a plan, conduct market research, and identify potential suppliers. Then, you will need to evaluate each supplier and choose the ones that best suit your business needs.
Strategic sourcing achieves efficiency by formalizing the way spend information is gathered, analyzed, and factored into the procurement process. It’s a continuous process that takes into account factors far beyond the cost of a product or service. Driven by experience, evidence, and fact, strategic sourcing eliminates the potentially high cost of opinion- or emotion-based procurement decisions.
A strategic sourcing approach allows procurement professionals to consolidate purchasing power to secure the best value available in the marketplace.
The goal of having an effective sourcing strategy is finding the perfect balance between quality and affordability while always managing risk and costs.
The benefits of having a sourcing strategy
Having a sourcing strategy mapped out is essential for the cost structure and competitiveness of businesses.
1. A sourcing strategy streamlines costs
Having a sourcing strategy in place allows the company to negotiate lower unit prices for high-volume purchases. The money saved in procurement goes directly into the bottom line and adds to profit. Strategic sourcing process looks for savings and simultaneously provides the company with a competitive advantage.
Keep in mind that strategic sourcing can also be used to procure services, not just goods. For example, businesses could outsource, partially or entirely, services such as accounting or legal.
2. A sourcing strategy helps minimize risks
Having the sourcing steps and process mapped out can definitely help in risk management. Strategic sourcing helps in analyzing overall spend and suppliers. The evaluation criteria includes quality risk, financial risk, supply risk, and support services. Once the risks are identified, you can specify measures to avoid or mitigate the risk.
Staying updated on your suppliers and maintaining close relationships ensure any problems are identified and solved quickly. Having a backup plan (backup suppliers, maybe local suppliers) comes in handy when faced with any event (regulatory, natural disasters, force majeure) that could cause disruptions in the supply chain.
3. A sourcing strategy ensures continuous improvement
Strategic sourcing is not a one-time activity. It’s a continuous cycle of activities where the executives learn about additional opportunities every time and improve on the findings to bring more value to the company. This ensures better decision making outside of the main benefit, of Cost Reduction. It helps companies in deciding the future development of the business, staying competitive in the market, and not miss opportunities that at first glance may not seem that obvious.
Creating an effective 7 step strategic sourcing process
Now that I’ve covered what sourcing is and how having a sourcing strategy in place can benefit companies, it’s time to focus on how you can create an effective sourcing process that best fits your business’ needs.
As global sourcing processes have matured and businesses have been implementing best practices, effective sourcing strategies have emerged. Here’s how you can create an effective sourcing process in 7 easy steps:
1. Make sure you understand the requirements
2. Choose the right process
3. Include the right information
4. Communicate with suppliers
5. Manage the process
6. Select suppliers
7. Manage suppliers.
All companies need an effective sourcing strategy and procurement strategy that will improve the business’ competitiveness and deliver significant benefits. For businesses, it’s critical to review purchasing policies, document the goals that need to be achieved, and design some sourcing steps that will ensure those goals are achieved.