Seven Procurement Sourcing Strategies


October 18, 2023

In the intricate world of procurement, the right sourcing strategy can be the difference between success and inefficiency. With a myriad of options available, it's crucial to align your procurement strategy with your organizational goals.

Making a misstep can lead to increased costs, potential risks, and unsuitable supplier partnerships. If you're navigating the maze of sourcing strategies, you're in the right place. In this article, we'll delve into:

  • What is strategic sourcing in procurement?
  • Why are sourcing strategies in procurement important?
  • 7 key procurement sourcing strategies
  • How Keelvar can optimize your sourcing process

What is strategic sourcing in procurement?

Strategic sourcing is a transformative approach to procurement that emphasizes maximizing value and reducing risks through vendor partnerships. This method is not just about finding the right suppliers but about building meaningful, long-term relationships with them. It's a big-picture perspective that accounts for various factors influencing value, such as spend analysis, supplier selection, and ongoing engagement. The ultimate aim is to reduce costs while enhancing the efficiency and reliability of the supply chain.

Historically, vendor selection was based on locality and referrals. But as technology evolved, organizations accessed a global network of suppliers. Now, procurement teams aim to control costs by finding the most affordable vendor swiftly. However, strategic sourcing recognizes that the cheapest option isn't always the best. It considers factors beyond just cost, focusing on the overall value a vendor can provide. This includes the quality of goods and services, brand reputation, financial stability, technology adoption, customer satisfaction, and more.

Strategic sourcing recognizes that the cheapest option isn't always the best

The concept of strategic sourcing isn't new; it began in the late 1980s or early 1990s. Initially used by large companies to quantify and increase vendor ROI, it's now widespread among organizations of all sizes. The benefits of strategic sourcing are numerous. It leads to significant cost savings, reduced risks, enhanced innovation, and longer-lasting relationships with vendors. This approach ensures that both parties are invested in a mutually beneficial partnership, leading to collaboration and shared success.

Why are sourcing strategies in procurement important?

In today's volatile market, having a robust sourcing strategy is more than just a competitive advantage—it's a necessity. A well-defined strategy ensures:

  1. Reduced Costs: One of the primary objectives of any procurement strategy is cost reduction. By meticulously considering various sourcing strategies, organizations can identify processes that align with their financial objectives, ensuring they get the best value for their money. Strategic sourcing software, like Keelvar, goes beyond just looking at the lowest-cost model, enabling teams to gather data, analyze expenditures, and negotiate effectively, ultimately leading to significant savings.
  2. Risk Mitigation: Different sourcing strategies come with varying levels of risk. By understanding and evaluating these strategies, organizations can choose methods that pose the least risk. This proactive approach ensures that both buyers and suppliers are safeguarded against potential pitfalls in the procurement process.
  3. Continuous Improvement: The realm of procurement is dynamic, with new methods and technologies emerging regularly. By staying updated on different sourcing strategies, organizations can adapt and evolve, ensuring their procurement processes remain efficient and effective. This adaptability can lead to improved quality, efficiency, and potential cost savings.
  4. Finding the Best Suppliers: The right sourcing strategy can be instrumental in connecting organizations with the most suitable suppliers for their needs. Whether it's insourcing, outsourcing, or global sourcing, the chosen strategy will influence the quality of goods and services received. For instance, if an organization lacks in-house capabilities, insourcing might not be the best fit. Conversely, if there's ample talent within the company, outsourcing might not be necessary.
  5. Global Perspective: Strategies like global sourcing offer businesses a chance to understand how commerce operates worldwide. This can lead to insights into new markets, potential cost-saving practices, and innovative solutions that might not be available locally.
  6. Long-Term Supplier Relationships: Strategic sourcing isn't just about short-term gains. It's about building lasting, mutually beneficial relationships with suppliers. Platforms like Keelvar emphasize the importance of these relationships, ensuring that both parties are invested in shared success.

Ultimately, sourcing strategies in procurement are not just operational tools; they are strategic assets that can significantly influence an organization's bottom line, risk profile, and market position.

Seven procurement sourcing strategies

  1. Outsourcing: Outsourcing involves delegating certain procurement activities or services to external suppliers or vendors. This strategy can help organizations focus on their core competencies, reduce operational costs, and access specialized skills or resources. Outsourcing is particularly beneficial when the required expertise or resources are not available in-house.
  2. Insourcing: Contrary to outsourcing, insourcing involves performing procurement activities internally rather than delegating them to external suppliers. This strategy is chosen when organizations have the necessary expertise in-house and want to maintain control over critical processes or sensitive information.
  3. Low-Cost Sourcing: This strategy focuses on sourcing goods or services at the lowest possible cost without compromising on quality. It involves identifying and partnering with suppliers that offer competitive prices, often achieved by sourcing from regions with lower production costs.
  4. Global Sourcing: Global sourcing involves procuring goods or services from suppliers located in different countries or regions. This strategy can lead to cost savings, access to specialized suppliers, and diversification of supply chains. However, it also requires managing challenges related to logistics, cultural differences, and geopolitical factors.
  5. Supplier Portfolio Management: This strategy involves assessing the supplier market and creating a portfolio of potential suppliers. By diversifying the supplier base, organizations can mitigate risks associated with supplier dependencies and ensure a steady supply of goods or services.
  6. Tailored Sourcing Strategy: Recognizing that one-size-fits-all approaches are often ineffective, this strategy emphasizes customizing sourcing plans based on specific business goals, the nuances of the supplier landscape, and the unique requirements of the organization.
  7. Continuous Improvement and Monitoring: Strategic sourcing is an ongoing process. This strategy emphasizes the regular monitoring of supplier performance, seeking opportunities for continuous improvement, and refining sourcing strategies in response to evolving market conditions and organizational needs.

These strategies, when implemented effectively, can lead to cost savings, improved supplier relationships, risk mitigation, and enhanced operational efficiency. Keelvar's strategic sourcing solutions can support organizations in optimizing these strategies, ensuring alignment with business objectives and maximizing value.

For example, Schneider Electric, a global leader in energy management and automation, faced challenges with their existing Excel-based approach for running complex transport tenders. Amidst market volatility and challenges like the COVID-19 pandemic, they recognized the need for an advanced sourcing solution. Keelvar's Sourcing Optimizer solution emerged as the perfect fit, offering powerful features that improved data quality, enabled optimal scenario runs, and mitigated cost inflation. This collaboration with Keelvar allowed Schneider Electric to achieve significant cost savings, reducing their expenses by approximately 60% in their most recent event.

Optimize your sourcing process with Keelvar

In the dynamic world of procurement, strategic sourcing stands out as a process that maximizes efficiencies across all spend categories, minimizes supply risks, and offers unparalleled visibility into pricing and forecasting. Keelvar, a leader in this domain, takes this a notch higher. With Keelvar, you not only get a solution that streamlines your sourcing but also one that is tailored to meet your organization's specific needs.

With Keelvar, you not only get a solution that streamlines your sourcing but also one that is tailored to meet your organization's specific needs

Our solutions are designed to enhance profitability by integrating data collection, spend analysis, market research, negotiation, and contracting into a single, cohesive system. Gone are the days of manually managing sourcing with spreadsheets, which often led to errors and reduced visibility. Keelvar's optimization platform minimizes risks, creates significant cost savings, and ensures all stakeholders have the improved visibility needed to ensure suppliers meet quality, compliance, and cost expectations.

Moreover, using Keelvar helps organizations:

  • Free up teams for more strategic work
  • Identify new savings opportunities
  • Drive cost savings across all spend categories.
  • Increase speed and efficiency
  • Find better suppliers
  • Simplify complex processes

But don't just take our word for it;
book a demo or speak to one of our experts to witness firsthand the transformative impact of Keelvar on your sourcing process.

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