Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. It is one component of supply chain management.

The steps in a strategic sourcing process are:[1]

  1. Assessment of a company’s current spend (what is bought where?)
  2. Assessment of the supply market (who offers what?)
  3. Total cost analyses (how much does it cost to provide those goods or services?)
  4. Identification of suitable suppliers
  5. Development of a sourcing strategy (where to buy what considering demand and supply situation, while minimizing risk and costs)
  6. Negotiation with suppliers (products, service levels, prices, geographical coverage, etc.)
  7. Implementation of new supply structure
  8. Track results and restart assessment (continuous cycle)

Strategic sourcing was initiated by General Motors in the 1980s. Strategic sourcing was later formalised into a methodology and implemented at other large scale blue chip companies with support of consulting companies like A. T. Kearney, PricewaterhouseCoopers, KPMG, and many others. This methodology become the norm for procurement departments and is today considered to be standard procurement working process.

Outsourcing is a method that can be employed as part of the overall sourcing strategy for services. This involves the transfer of staff and assets to an external or third-party company which then provides them back as a service.

 Sourcing optimization

Operations Research is the discipline of applying advanced analytics to help make better decisions. Optimization, in turn, utilizes mathematical algorithms to rapidly solve a business problem by evaluating all possible outcomes (or many outcomes) and selecting those ones that yield the best solution.

When applied to sourcing and supply chain operations, optimization helps the sourcing professional simultaneously evaluate thousands of different procurement inputs. This evaluation can take into consideration the global market, specific current supply chain conditions, and individual supplier conditions, and offers alternatives to address the buyer’s [and supplier’s] sourcing goals.

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