How to Make the Most of Strategic Sourcing

Abstract and Detailed Outline

Abstract

One of the major constraints that adversely affect the procurement process is the potential tendency for managers to forge long-term personal relationships with vendors, which may cause them to overlook opportunities for lower cost, improved reliability, and enhanced customer service elsewhere. Fortunately, the strategic sourcing approach provides procurement managers with a proven framework that can help continuously improve an organization's purchasing activities and add value along the entire supply chain continuum. The purpose of this paper is to provide a systematic review of the relevant literature to develop a working definition of strategic sourcing and a general description of its importance for organizations of all sizes and types, but especially multinational corporations with global supply chains in particular. In addition, another purpose of the paper is to provide a comprehensive analysis of the recently completed 3-year California's Strategic Sourcing Initiative to identify lessons learned and best practices that have widespread applicability today. Finally, a summary of the research and key findings concerning the importance of strategic sourcing and how it can help companies achieve and sustain a competitive advantage are presented in the conclusion.

Outline: The Importance of Strategic Sourcing

Introduction (untitled)

The introduction will be used to explain that any consumer can readily testify to the importance of searching for the best deals that are available, especially when it comes to high-ticket items such as cars, boats, and houses. Likewise, the same sourcing rationale applies to organizations of all sizes and types as they seek to develop and sustain a competitive advantage in an increasingly globalized marketplace. The introduction will also describe the paper's purpose, which is to review the relevant literature to provide a concise definition of strategic sourcing and why it is important. The introduction will also explain that the paper will research a completed strategic sourcing initiative, which will be followed by an analysis of the implications of the findings for real-world practice. Finally, the introduction will also explain that the paper will provide a summary of the research and important findings concerning these issues in the conclusion followed by an analysis of directions for future research that are based on these results.

Background

This section will be used to describe the nature of the research that follows. In addition, this section will also be used to set the stage for the respective sections on defining strategic sourcing and its importance that follow in the sections below. In addition, this section will also be used to provide a description concerning how the paper intends to review and synthesize the results and findings that emerged from a 3-year California's Strategic Sourcing Initiative (CSSI) which was completed in 2010. This synthesis will be used to identify salient challenges and opportunities for the optimization of strategic sourcing solutions for inclusion in the findings section and to inform the directions for future research concluding section. Likewise, this section will explain that this research will be used to identify relevant lessons learned and best industry practices for procurement professionals interested in applying strategic sourcing to their own organizations. In addition, this section will explain that a synthesis of the research concerning strategic sourcing is provided in the findings section followed by a summary and directions for future research.

Literature Review

Definition and importance of strategic sourcing

This section will be used to provide definitional clarity to the term "strategic sourcing" to distinguish it from conventional procurement and why it is important (Gottfredson, Puryear Phillips, 2009). Although there are no universally accepted definitions, a number of researchers have advanced one version or another that highlight the main characteristics of the process. For instance, according to Talluri and Narasimhan (2009) advise that, "Strategic sourcing specifically deals with managing the supply base in an effective manner by identifying and selecting suppliers for strategic long-term partnerships and enhancing their performance" (p. 236). Similarly, Kim and Chai (2017) advise that, “Strategic sourcing is the process of supplier management and supply network design used to achieve operational and performance objectives [which] has had a positive effect on the buyer–supplier relationship and supplier evaluations as well as on sourcing performance” (p. 45).

Yet another authority defines strategic sourcing as “Strategic sourcing is an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best values. It serves as a roadmap to procure the goods and services the organization knows it needs ahead of time, allowing procurement managers time to find the best price, instead of waiting until there is an immediate need” (The importance of strategic sourcing in procurement, 2020, para. 3). In sum, then, strategic sourcing can be conceptualized as an ongoing process that seeks to identify the best vendors which can serve as strategic supply chain partners rather than just suppliers of goods and services (Jensen, 2017).

One of the main points that will be made concerning the importance of strategic sourcing is its focus on a continuous search for optimal downstream procurement opportunities that can facilitate the delivery of upstream products and services (Gottfredson et al., 2009). Yet another point that will be made in this section is the need to ensure that appropriate information-sharing practices are in place with strategic supply chain partners in order to optimize the strategic sourcing approach (Kim & Chai, 2017).

In addition, this section will also be used to provide a description of the key benefits in support of implementing strategic sourcing solutions, including the four key benefits set forth in Table 1 below.

Table 1

Key benefits in support of strategic sourcing solutions

Reason

Description

Increased cost savings

The most obvious benefit businesses will experience from strategic sourcing would be higher levels of cost savings. Identifying and selecting suppliers that will provide the highest value at the right pricing will enable an organization to continuously achieve higher cost savings.

Improved alignment of sourcing and business objectives

Aligning the sourcing activities of a business to its organizational goals and objectives is at the crux of strategic sourcing. Better alignment allows the business to achieve higher business performance with higher efficiency and minimal supply chain risks.

Optimization of ideal suppliers

In order to effectively implement strategic sourcing in organizations, it is necessary to analyze the suppliers, their profiles, and core capabilities. Once this is accomplished, an organization is equipped with information that will allow them to match their business objectives to their ideal suppliers. This implies highest value-creation at lowest-possible cost.

Long-term relationship building with suppliers

Strategic sourcing helps an organization build long-term relationships with its suppliers. By reinforcing the focus on the core capabilities of the suppliers and assuring the right suppliers for the right sourcing objective, strategic sourcing helps create a synergy between organizations and its suppliers. Sustained relationship with suppliers also implies that when the suppliers are valued and considered in various sourcing decisions; they feel motivated to optimize their performance to meet the organizations objectives.

Source: Adapted from Patowarya (2019)

Evaluation of a completed strategic sourcing initiative

This section will be used to evaluate the 3-year California's Strategic Sourcing Initiative (CSSI), which was completed in 2010 (Hanson, 2010). Some of the more salient findings that will be evaluated include how the CSSI successfully codified the lessons learned from this initiative to apply them to future strategic sourcing projects. In this regard, the CSSI project manager emphasized that "We completed a strategic sourcing integration plan. That's the best way to transition from strategic sourcing as a project to strategic sourcing as another set of tools in the toolbox for conducting procurements in general" (as cited in Hanson, 2010, para. 5). The lessons learned and best practices developed from the CSSI project and the findings that emerge from the literature review will be synthesized and applied in the section below.