Importance of “strategic sourcing” in procurement outsourcing

Strategic sourcing is essentially a procurement process that constantly improvises and re-evaluates the buying activities of a company. “Smart Sourcing” is itself a touchstone in outsourcing. It encompasses a variety of services that will end up making a business stand out from its competitors. Strategic Sourcing is a tool to strengthen a company's competitive advantage. Global procurement services in the UK follow a strategic sourcing process.

The first step that a strategic sourcing process would involve is evaluating the company's procurement policies and processes. To put it simply, an assessment of the company's spending is made and in doing so creates a spend analysis which would later provide better control on cost and improve profits essentially reducing Total Cost of Acquisition.

Being able to better analyse a supply market is best carried out by having complete, workable knowledge of the said market. Knowing "who offers what" provides a better picture of the possible resources available in the market. A market assessment would lead to better bargaining possibilities.

After getting an understanding of the company's spending structure, the next step is a complete cost analysis, which is essential in determining the costs of the product/goods or services being procured by the company this would later become an important source of information when a cost-benefit analysis is carried out and an overall business strategy is being developed.

Analysis of the supply market presents the business with options in regards to the people it wants to get involved with within various steps of the product life cycle; this might include raw material suppliers, manufacturers, or distributors depending on the functional requirement. Having identified the possible partnerships, the strategy can now be formulated.

After having determined the cost structure and developing a good picture of the supplier’s market, now is the time to put into action all the research that has been done which would allow the company to flourish and which would enable its products/services to develop into a brand name. This step is essential as it also provides for a risk analysis regarding the performance of the product being offered. In layman terms, strategy formulation is being able to identify where to buy what considering demand and supply situations while minimising risk and costs.

For the strategy to be brought to fruition, agreements and contracts with related parties are put into action. This includes negotiations on pricing, determination of logistics, involvement of parties involved, etc. The process of product development and the efficiency of strategic sourcing is fully utilised if there is coherence amongst the parties on their respective functions and understanding of each other.

Like every other production process, the strategy that has been planned out must be implemented and steps are taken to ensure maximum success. But the process does not stop there. After implementation, a cyclical review process is to be carried to better evaluate and improve on the current plan of action.

This is a method that can be employed as part of the overall sourcing strategy for services. Outsourcing is a bond, where a third company contracts to perform a task and be responsible for a planned or existing activity.