Strategic Sourcing Process - Complete Guide (2024)


March 5, 2024

In today's hyper-competitive business landscape, optimizing operations and reducing costs are paramount. Strategic sourcing offers a solution by meticulously selecting suppliers, products, and services.

This guide explores the essence of strategic sourcing, its significance, associated benefits, key steps, real-world examples, and essential tools. Whether you are new or refining your procurement strategies, this guide equips you to excel in strategic sourcing.

In this guide, we'll cover:

  • What is strategic sourcing?
  • Why is it important to have a strategic sourcing process?
  • Benefits of strategic sourcing process 
  • Seven step strategic sourcing process
  • Strategic sourcing example
  • Strategic sourcing tools

What is Strategic Sourcing?

Strategic sourcing is a practice that aims to ensure timely delivery of products and services in line with the company's business goals while lowering supply chain risk and expense. The practice is further streamlined with the help of strategic sourcing software.

For example, Sourcing Optimization such as that offered by Keelvar enables sourcing teams to go beyond simplistic supplier award decision-making that is driven solely by a lowest-cost model. It facilitates that approach by allowing for data gathering, expenditure analysis, market research, negotiation, and contracting, thus allowing businesses to devote greater attention to their revenue-generating operations. 

Some of the key benefits of having strategic sourcing software include identifying new cost savings, reducing operational risk, speeding sourcing decisions, improving sourcing process quality, and discovering new supplier innovations. 

Why is it Important to have a Strategic Sourcing Process?

The traditional tools that were once effective in uncovering value and managing data are no longer adequate for achieving success in today's competitive market. While spreadsheet and desktop tools that rely on manual collection of supplier bids and email-based communication might seem quick and familiar, they more often than not fall short of expectations.

When basic  e-sourcing tools  are widely used for sourcing events involving numerous suppliers, challenges can and do arise. Unclean data and suppliers introducing conditional elements in their bids can pose difficulties that tools like Excel struggle to interpret and address. Furthermore, buyers frequently opt to gather limited data in their RFPs to avoid the analytical complexities that arise. Unfortunately, this simplicity often comes at the cost of potential savings and value.

These issues represent just the surface-level challenges. Without a centralized, auditable, scalable, and innovative decision-making process, these practices hinder the overall sourcing strategy's effectiveness. With Keelvar’s Sourcing Optimizer buyers can collect a wide range of price and non-price bid information from suppliers, and then analyze multiple award scenarios based on those criteria and other constraints and preferences. 

The solution uses easy automation to improve the quality and efficiency of sourcing optimization events, bid data validation, event auto-piloting, and more.

Benefits of Strategic Sourcing Process 

Strategic sourcing isn't merely a sourcing strategy; it's a well-calibrated mechanism that reaps numerous benefits for businesses across the board. From substantial cost savings to enhanced supplier relationships, here's why incorporating a strategic sourcing process can revolutionize your sourcing:

Cost Savings: Unleashing the potential of competitive bidding yields tangible cost reductions. By fostering a more creative and dynamic bidding process, strategic sourcing can lead to remarkable savings ranging from 5% to over 20%, depending on the category and its characteristics.

Strategic sourcing isn't merely a sourcing strategy; it's a well-calibrated mechanism that reaps numerous benefits for businesses across the board

Time Efficiency: Replicating the capabilities of strategic sourcing software manually in Excel or with legacy tools is a resource-intensive endeavor. That’s why leveraging best-of-breed solutions such as Keelvar’s Sourcing Optimizer streamlines processes, saving valuable time and resources while ensuring efficient outcomes.

Risk Mitigation: Collaborative efforts between stakeholders and sourcing teams can generate supplier award scenarios that are modeled for risk assessment. Factors such as supplier reliability, incumbency, certifications, and more can be strategically weighed through optimization, resulting in reduced sourcing risks.

Process Consistency: Standardization is the cornerstone of a successful sourcing process. Consistently implementing best practices throughout bid collection, negotiation, and awarding processes fosters consistency, predictability, transparency, and traceability. 

Supplier Satisfaction: The supplier experience is a vital aspect that shouldn't be overlooked. Equipping suppliers with user-friendly bidding tools empowers them to submit their most competitive bids easily and enables broader supplier participation, leading to more competitive bids.

A Step-by-Step Strategic Sourcing Process 

Efficient procurement is a cornerstone of successful businesses today. The strategic sourcing process, a meticulously designed framework, empowers organizations to streamline their procurement activities for maximum cost savings, enhanced supplier relationships, and optimized supply chain operations. In this article, we delve into the seven essential steps of the strategic sourcing process that can revolutionize your sourcing strategy.

Step 1:  Internal Assessment & Alignment

Begin by understanding your organization's unique needs and objectives. Identify key stakeholders and ensure their alignment with the sourcing process. This step lays the foundation for a successful sourcing journey by clarifying the path ahead.

Step 2: Market Research & Supplier Spotting

Thorough market research is vital to identify potential suppliers who can meet your specific requirements. Dive into supplier capabilities, pricing trends, and offerings. This step helps you make informed decisions and opens doors to new supplier partnerships.

Step 3: Supplier Evaluation & Shortlisting

Evaluate potential suppliers meticulously, considering factors like financial stability, quality assurance, and capacity. Pre-qualify suppliers to create a shortlist of candidates with the potential to fulfill your organization's needs effectively.

Step 4: RFP/RFQ & Supplier Insights

Launch an RFP or RFQ for the selected pool of suppliers. Outline your requirements and invite detailed proposals or quotations. This step enables you to gain insights into supplier strategies and costs, guiding your decision-making process.

Step 5:  Supplier Selection & Negotiation

Choose suppliers based on their responses and initiate negotiations. Price, delivery schedules, quality standards, and contractual terms are on the negotiation table. Effective negotiation ensures favorable terms and a strong foundation for collaboration.

Step 6: Contract Finalization & Rollout

With successful negotiations, finalize a comprehensive contract with your chosen supplier(s). This document encapsulates all agreed-upon terms. As you implement the contract, integrate supplier products or services seamlessly into your operations.

Step 7: Supplier Performance & Growth

Monitoring supplier performance is crucial for maintaining high standards. Regular performance reviews and feedback sessions foster a productive supplier relationship. Moreover, continuous improvement initiatives ensure your sourcing process evolves and stays optimized.

By following these seven well-defined steps, you can harness the power of strategic sourcing to unlock cost efficiencies, nurture supplier collaborations, and bolster your overall supply chain resilience.

Strategic Sourcing Example

Let’s now take a look at an example of how one Keelvar customer embarked on their strategic sourcing process, achieving 85% time savings and generating an extra $5 million in savings. 

Faced with the challenges of managing complex logistics sourcing events, Samsung transitioned from manual Excel-based processes to Keelvar's Sourcing Optimizer. This shift not only automated event setup and supplier offer validation but also enabled instant scenario modeling for optimized decisions.

Through this partnership, Samsung streamlined their largest-ever $100 million ground freight event within two weeks, redirecting its focus from manual tasks to strategic thinking. Keelvar's user-friendly system not only simplified complex processes but also improved supplier relationships by enhancing transparency and bid status visibility. 

The success prompted Samsung to expand its usage of Sourcing Optimizer across various spend categories, driving further cost savings and efficiencies. In the words of Radu Panciuc, Contracts & Innovation Manager at Samsung, Keelvar's solution "unlocks more value for strategic events," underscoring the transformational power of technology in strategic sourcing.

Read the full success story here

Strategic Sourcing Tools

The strategic sourcing process demands precision, data-driven decision-making, and advanced tools to ensure optimal outcomes – and this is where Keelvar steps in as a game-changer.

With easy to use rapid event creation and proactive bid validation, Sourcing Optimize streamlines the entire sourcing process, driving savings and better sourcing outcomes. The tool’s scalability allows it to handle complex sourcing events with thousands of line items and hundreds of bidders efficiently, while its robust scenario analysis feature enables businesses to optimize awarding, making the sourcing process more successful overall. 

With Autonomous Sourcing added to the mix, bot-powered workflows bring greater competition, speed, and governance into the mix, all geared towards scaling sourcing excellence across your strategic sourcing processes for all categories and spend. Contact us today to learn more about how to upgrade your strategic sourcing process for the better.

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