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The 7-Step Strategic Sourcing Process

In today’s complex and dynamic business landscape, implementing an effective strategic sourcing process is critical for organizations seeking to optimize procurement costs, mitigate supply chain risks, and gain a competitive edge. This process goes far beyond merely securing the lowest price from vendors. It involves a thorough analysis of internal needs, the supplier marketplace, and the establishment of mutually beneficial partnerships.


By methodically following these seven strategic steps, companies can ensure greater transparency, compliance, and value in their sourcing outcomes.


Understand Spend Categories


The first step entails developing an in-depth understanding of the spending category under analysis. Procurement teams need clarity on current usage patterns, who the end-users are, where they are located, and details of existing supplier relationships and processes.


It is crucial to determine the type, grade, technical specifications, and pricing model for materials or services being sourced. Granular insight sets the foundation for making informed sourcing decisions aligned with internal priorities and external market dynamics.


Assess the Supplier Marketplace


With clarity on internal needs, the next phase involves assessing the supplier marketplace around factors like:


Pricing trends and market forces influencing them

Competitor sourcing strategies

Supplier capacities, capabilities, and stability

Innovations and disruptions in the category

This market intelligence allows procurement teams to identify the right suppliers to engage while optimizing value. It also facilitates decisions on appropriate sourcing timelines based on predicted price movements.


Develop a Strategic Sourcing Strategy


Equipped with market insights and internal stakeholder needs, the team can develop a tailored strategic sourcing strategy. This entails defining:


Sourcing methodology: Direct or through intermediaries

Geographic considerations for supplier proximity

Volume and contract duration based on category dynamics

Performance parameters like quality, lead times, flexibility

Technology needs for efficiency and compliance

It is advised to involve cross-functional teams including stakeholders, subject matter experts, and end-users in framing well-rounded strategies.


Create a Supplier Shortlist


The next step focuses on identifying a shortlist of suppliers to potentially engage. Detailed requests for information (RFIs) and proposals (RFPs) can be created to evaluate supplier qualifications.


RFPs outline exact business needs and minimum capabilities required in areas like quality certifications, production capacities, previous experience, and technological abilities.


Thorough vetting ensures only competent vendors aligned to internal prerequisites get shortlisted.


Supplier Negotiations and Selection


This phase involves directly interacting with shortlisted suppliers through quotations, negotiations, visits, and solution presentations. Procurement teams analyze total landed cost, qualitative capabilities, risks, and intangibles before deciding on suppliers.


Rather than just securing the lowest bid value, the focus is on the total value derived from factors like quality, reliability, transparency, sustainability, and technology enablement.


Balancing these parameters leads to partnerships built on trust and shared objectives. Teams may also divide sourcing needs between multiple specialized suppliers.


Implement and Integrate Solutions


The chosen supplier relationships now get implemented across the organization. Procurement works closely with vendors to integrate them into existing processes through training, updates, and sustained engagement.


Clear communication ensures suppliers understand evolving needs and internal stakeholders get transparency into sourcing decisions. For services, change management is vital during transitions.


Benchmark and Evaluate Performance


The final step entails continuous evaluation of supplier performance against defined KPIs mentioned in contracts. Regular assessments help teams benchmark progress in cost savings, service levels, quality, technology adoption, sustainability metrics, and contract compliance.


Any gaps identified can be addressed promptly to keep partnerships aligned around objectives. Periodic strategy reviews also allow teams to realign approaches considering internal and external developments.


In summary, this seven-step strategic sourcing process allows organizations to thoroughly analyze spending categories, market dynamics, and user needs before engaging suppliers. Partnerships are structured around value beyond pricing, leading to resilient supply chains and maximum ROI.


Integrating e-procurement solutions through the process enhances data-driven decision-making, compliance, and efficiency. However, technology enables rather than replaces the human discernment essential for smooth stakeholder alignment and supplier relationships.


With growing uncertainty in global supply chains, the ability to strategically optimize how organizations source goods and services offers a key competitive differentiator now more than ever.