David has taught computer applications, computer fundamentals, computer networking, and marketing at the college level. He has a MBA in marketing.
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.
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.
In order for a company to be strategic about sourcing, they need good visibility over their spending for supplies and vendor relationships. Imagine if several departments in a business all were buying similar things from different vendors without knowing how they overlapped - oops! You could have a situation where different vendors were charging you different prices, and if you aggregated your spending with one vendor, you might get a better deal. But strategic sourcing isn't just about the lowest cost - you want to develop partnerships with your vendors, so they'll stand with you in a pinch when you really need their help. Sometimes a timely, last-minute delivery of materials can save the day in filling an order. Sourcing decisions also need to consider overall corporate objectives, customer needs, and the goal of delivering a quality product to clients.
Strategic sourcing is a systematic, data-driven way of bringing in products and services needed to run a business and/or make a product. It's part of supply chain management (SCM), which includes not only the sourcing of materials but also getting products out to customers. Materials and services are provided by the upstream partners of a business, and the business's clients are the downstream partners. All of the transactions and materials can be tracked in an enterprise resource planning (ERP) system in order to give management insight into all business activities.
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