Strategic Sourcing

Topics: Supply chain management, Procurement, Management Pages: 12 (3460 words) Published: March 27, 2013
Siddhartha Chitla


1. Loss Of Managerial Control10
2. Hidden Costs10
3. Threat to Security and Confidentiality10
4. Quality Problems10
5. Tied to the Financial Well-Being of Another Company11


Strategic sourcing is critical for firms practicing the principles of supply chain management. It specifically deals with managing the supply base in an effective manner by identifying and selecting suppliers for strategic long-term partnerships, involving in supplier development initiatives by effectively allocating resources to enhance supplier performance, providing benchmarks and continuous feedback to suppliers, and in some cases involving in supplier pruning activities. Currently, the methodologies in practice for strategic sourcing have mostly been subjective in nature with few objective decision models focused at supplier evaluation, which are also not devoid of limitations. This paper proposes an objective framework for effective supplier sourcing, which considers multiple strategic and operational factors in the evaluation process. Suppliers are categorized into groups based on performance, which assists managers in identifying candidates for strategic long-term partnerships, supplier development programs, and pruning. In addition, this research investigates the differences among supplier groups in proposing possible improvement strategies for ineffectively performing suppliers. Also, we demonstrate the methodological richness of our framework when compared to some of the traditional methods proposed and utilized for supplier evaluation purposes. The supplier data utilized in the study is obtained from a large multinational corporation in the telecommunications industry.


Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. In a production environment, it is often considered one component of supply chain management. Strategic sourcing techniques are also applied to non traditional area such as services or capital. The steps in a strategic sourcing process are: Assessment of a company's current spend (what is bought where?) 1. Assessment of the supply market (who offers what?)

2. Total cost analyses (how much does it cost to provide those goods or services?) 3. Identification of suitable suppliers
4. Development of a sourcing strategy (where to buy what considering demand and supply situation, while minimizing risk and costs) 5. Negotiation with suppliers (products, service levels, prices, geographical coverage, etc.) 6. Implementation of new supply structure

7. Track results and restart assessment (continuous cycle) The term "Strategic sourcing" was popularized through work with a variety of Blue Chip companies by a number of consulting firms such as A.T. Kearney, Booz Allen Hamilton, KPMG, Price water house Coopers, and PRTM in the late 80s and early 90s. This methodology has become the norm for procurement departments in larger, sophisticated companies. Outsourcing is a method that can be employed as part of the overall sourcing strategy for services. This involves the transfer of staff and assets to an external or third-party company which then provides them back as a service.

Sourcing Optimization
Operations Research is the discipline of applying advanced techniques to help make better decisions. Optimization, in turn, utilizes mathematical algorithms to rapidly solve a business problem by evaluating all possible outcomes (or many outcomes) and selecting those ones that yield the best solution. When applied to sourcing and supply chain operations, optimization helps the sourcing professional simultaneously evaluate thousands of different procurement inputs....
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