The Four Stages of Strategic Sourcing

Strategic sourcing is a disciplined approach for selecting suppliers and procuring goods and services that has delivered strong return-on-investment (ROI) for many enterprises. Based on a series of business processes, strategic sourcing helps a company transform itself from being a tactical organization focused on transactions to one that is strategic, focusing on processes that maximize supply value.

Enterprises that adopt and implement strategic sourcing undergo a constant progression, a sort of "evolution," that fundamentally transforms them on both an organizational and technological basis. Relevant business processes evolve and become realigned in an effort to extract maximum value from supply. The manner in which technology is deployed also evolves, as key managers and users become more adept at taking full advantage of new and powerful technological tools.

The pace at which companies evolve depends on many factors, including their relative sophistication in strategic sourcing and the technological experience and expertise of key managers. But strategic sourcing is not about technology; it's about defining and using processes that continuously create supply value. If company management focuses too much on one aspect of strategic sourcingsuch as technology tools or e-enabled online "events" like reverse auctionsprogress will be slowed or stopped.

The true, long-lasting value of strategic sourcing lays in improved supply strategy execution and the continuous improvement of the entire supply chain. Improved business processes that employ technology tools, as well as the experience and creativity of key supply managers, produce these benefits. Strategic sourcing also unleashes untapped value from various links in the supply chain.

Companies often focus too much on automating the transaction process that connects transaction systems to other information systems. While transactions and system integration are important, they do not produce competitive advantage by themselves. Strategic sourcing does provide a solid competitive advantage by capturing supply data and knowledge and using it to create world-class supply strategies and supply chains. In addition, managers can use this knowledge to continuously improve how strategies are created and executed. Technologies used in strategic sourcing enhance a company's ability to institutionalize best practices across its entire enterprise and then through its supply chain, both to upstream suppliers and downstream entities such as customers and business partners.

To achieve true strategic sourcing, companies need a foundation that includes technology, tools, knowledge and people. These four elements evolve through the various stages of strategic sourcing, but all are absolutely essential to long-term success.

Companies that adopt strategic sourcing do not always follow the same exact path, but for simplicity's sake we can segment the strategic sourcing progression, or evolution, into four stages. Note that no single path exists for the first three phases they take place at different rates and in different ways from one company to the next, and they each have process and technical paths that may be attempted separately. However, any company hoping to achieve the fourth stage must come through a process and a technology evolution.

Stage One

In the first stage, an enterprise recognizes that it must change the way it acquires goods and services. The company's top-level management realizes the tremendous potential value to shareholders and customers that can be produced through strategic sourcing, and that the organization has been "leaving money on the table" when it comes to supply value. The company examines its strategies and the processes used to acquire outside goods and services, and it invests accordingly.

Typically, high-performing people from both inside and outside the company are shifted into the strategic sourcing group, often from functions other than purchasing/procurement, such as finance, technical, sales, marketing and others.