What is Strategic Sourcing? - Definition & Process

Instructor: David Whitsett

David has taught computer applications, computer fundamentals, computer networking, and marketing at the college level. He has a MBA in marketing.

How do businesses make purchasing decisions when there are multiple sources for items? What factors enter into the equation for optimizing value? In this lesson, we'll define strategic sourcing and discuss the process in a corporate setting.

What is Strategic Sourcing?

Black Friday is coming - you've scoured the ads for the best sales, mapped out your route to minimize standing in line and to save gas. Now it's time to go get those deals for your family. Alright, now imagine you're in the purchasing (procurement) department of a business, and it's your job to get the best deals on the goods and services you need to operate your business. It's a constant process of evaluating your own requirements and what's available in the market at any given time. That's strategic sourcing in a nutshell - making sure you're getting superior value on supplies and services and also making sure you've optimized your internal purchasing processes. You have to consider your budget (just like at home), survey the landscape of potential suppliers, and negotiate the terms of the purchase.

Strategic sourcing is part of internal supply chain management
Supply chain

Supply Chain Management

Strategic sourcing is one aspect of supply chain management (SCM), which encompasses the whole flow of bringing in materials from suppliers and managing the use of information and finances in order to get a product out the door. Sourcing is a collaborative effort between a business and their partners - there must be coordination in generating supply orders, order-taking at the partner's end, and order fulfillment. Supplies must be brought in at the appropriate time and in the correct quantity to maintain a product flow to consumers. Too much supply inventory can result in unneeded costs, and not enough inventory may delay a product's availability to customers. Collaboration can include using software to communicate parameters to your upstream partners (suppliers) and downstream partners (clients). For mid-to-large size businesses, sourcing information flow can be a part of enterprise resource planning (ERP) systems, which gather information from various parts of the business to give management insight into activities and aid them in developing a strategy.

Factory robots need a timely flow of materials so they can do their job
Factory robot

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