Strategic sourcing is the name of the game for procurement professionals. It differs materially from traditional purchasing in that it works to intentionally create value and gain a competitive edge.
Creating value isn’t all about cost-per-unit. This is the traditional metric for building a supply chain. But strategic sourcing acknowledges that there are other key considerations in the realm of vendor selection. An effective procurement process factors in supplier sustainability to create stability in the supply chain, which adds value by ensuring that you have what you need when you need it, without links in the chain crushing your company’s best-laid plans.
The strategic advantage
Any seasoned procurement leader will happily tell you that strategic sourcing has a strong advantage over traditional purchasing.
And the heart of that advantage is the quality of the buy-vendor relationship.
By working in a mutually beneficial relationship which acknowledges the core competencies of vendors and leverages them accordingly, supply chain partners and buyers become an interdependent reality, adding value and offering bottom line efficiencies.
Traditional purchasing, with its focus on unit cost, overlooked the intrinsic value of approaching vendor-buyer relationships strategically – creating synergies which serve both parties and creating collaborative opportunities which serve the same purpose.
The raw differences
There are several key categories which point out the raw differences between the two approaches.
The first is cost. Strategic sourcing sees the big picture, acknowledging the importance of items like overall value and total cost of ownership, going well beyond the traditional purchasing cost-per-unit model.
Traditional purchasing’s focus on unit cost is geared toward obtaining products at the lowest possible price in order to pass on superior discounts to end customers. Strategic sourcing goes further than that, putting quality in the mix while considering cost-per-unit. Low cost + high quality = happier buyers.
Strategic sourcing’s reach is also wider than that of traditional purchasing, sourcing vendors further afield to achieve its ends. The traditional model keeps its vendors close to home.
But it’s the relationship between the buyer and supply chain partners that genuinely distinguishes strategic sourcing. It’s more than just a casual thing. The relationship becomes one which is sustained over time, as the two parties find new ways to work more effectively together and to sustain the relationship to the advantage of them both.
Finally, traditional sourcing reacted to ruptures in the supply chain and other deficiencies, while strategic sourcing nips problems in the bud proactively, effectively preventing them and the cost associated with them.
Are you the exception?
To conclude, we’re going to be upfront and admit that strategic sourcing has a price tag attached which is higher than that of traditional purchasing. If your company is smaller, it may not be the way forward for you at this time. But larger companies are compelled to consider this model of procurement. It works well for organizations with several physical plants which require goods and services unavailable from local suppliers.
CenterPoint Group is a trusted procurement leader, leveraging the undeniable power of collective indirect spend for our members. Contact us.