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What Is Strategic Sourcing?

By Jan Fletcher
Updated May 16, 2024
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Strategic sourcing is a business activity in which a tactical method is used to procure materials required for consistent, high-quality supply-chain management. In strategic sourcing, a business gathers market intelligence on how to obtain supplies from reliable vendors in a cost-effective manner. The information gathered is then used to develop long-term relationships with vendors for the purpose of ensuring a steady source of supplies. A strategic sourcing plan's goal is an on-time supply of materials to meet production demand without unplanned delays.

Manufacturing firms stand to gain a significant benefit from an effective procurement process. Supply-chain interruptions can cripple assembly-line production and cause costly production shut downs. Even one supplier of a critical component can create a weak link in a supply-chain and severely affect production. In manufacturing operations, supplies from a variety of vendors may be required to meet production goals in a timely fashion. By using a strategic sourcing plan to ensure a variety of reliable vending relationships, a manufacturer attempts to avert shortages and production delays.

A strategic-sourcing plan rests upon gathering accurate market intelligence. Information on potential suppliers of the commodities the manufacturer must procure is analyzed, perhaps even on an ongoing basis. By analyzing both historical and current data on the available suppliers currently operating in the marketplace, a manufacturer will estimate the depth of the supply for a particular commodity. Some materials a manufacturer requires for production may be available only from a few limited sources. Other companies may be in stiff competition for access to these limited sources to ensure they have an adequate supply of the same item.

Through this intelligence-gathering process, a commodity profile may be created in an attempt to anticipate potential failures in the supply of that commodity from a particular vendor. This information is also used to locate those supply-chain vendors with a proven track record in contract fulfillment. In a procurement strategy, one goal may be to develop trusted relationships with reliable vendors. Then, if another manufacturer approaches that vendor, the vendor may stay loyal to the current manufacturing customer.

Another reason for strategic sourcing is to ensure minority and gender diversity in the supply chain. Many companies seek to achieve a more positive image in the public eye by touting a commitment to diversity. A supply-chain diversity initiative within a company is thought to bestow a competitive advantage, both in recruiting talent, as well as enhancing the company's public image.

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Discussion Comments
By KoiwiGal — On Nov 13, 2011

One thing I think people should keep in mind when going about sourcing their products or materials is to think about trying to keep them as local as possible.

There are many benefits to this. For one thing, it looks good to customers, so it's a point of difference for your business.

For another, you will cut down on transport costs, and you'll be able to more easily ensure your supply chain won't be affected by third parties like mailing companies.

And, in the long run, it's just the best thing to do. Cutting down carbon and employing local people will help to make the world a better place for everyone around you.

In reality, that's something we all want, I think.

By Mor — On Nov 12, 2011

@irontoenail - I actually think it's just a good idea in general to make sure you can get your materials from more than one place.

Even the most reliable of suppliers can be hit by circumstances outside their control. If nothing else, an earthquake or other natural disaster can affect the most canny of businesses.

That's why you need to have strategic sourcing strategies in place to make sure that you aren't placing all your eggs in one basket.

This is particularly important for e-procurement. You never know when an online company is going to go out of business and leave its customers high and dry.

By irontoenail — On Nov 11, 2011

It really can't be emphasized enough how important it is to make sure the source of materials is reliable. I would prefer that over the materials being cheap or even, to some extent, high quality. Although, usually quality and reliability will go hand in hand anyway.

But, if your source of a particular material dries up, it could really damage your reputation, as well as your income. You never know when an opportunity will come up.

And I would also pay attention to the contract between you and the vendor, to ensure that it allows you to find materials elsewhere if necessary.

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