Traditionally, some businesses have used the term procurement synonymously with purchasing. But now, purchasing is often seen as just one stage in a larger, more strategic procurement process. So, what exactly is procurement?

Procurement involves every activity involved in obtaining the goods and services a company needs to support its daily operations, including sourcing, negotiating terms, purchasing items, receiving and inspecting goods as necessary and keeping records of all the steps in the process.

Procurement is my main area of experience and focus. Cost reductions by making a strategic sourcing plan and methodology for continuous sourcing optimization.

What is Strategic Sourcing?

Strategic sourcing is a process by which firms can organize and continually analyze their procurement and purchasing decisions. Importantly, a strategic sourcing plan does not just look at the purchasing price of goods and services. Instead, it includes a holistic view of each aspect of the procurement process including procurement planning, requirement definition, tendering and sourcing, evaluation and selection, contract award, and contract management. This is different from past sourcing strategies that looked more singularly at purchasing price without taking the other aspects of the procurement cycle into account.

The first step in implementing a strategic sourcing plan is to look at the company’s current spending. Next, leadership must assess the market of suppliers. Total costs for each supplier should then be calculated to conduct a comparative analysis.

Ideal suppliers are then identified, and it’s at this time that leadership begins to create a sourcing strategy. Next, negotiations with suppliers are finalized, and a new supply chain is implemented. Finally, leadership tracks progress and continually reconsiders the approach so that the company can remain flexible and adjust as needed.

What is Sourcing Optimization?

After a strategic sourcing plan is implemented, the process of sourcing optimization takes place on an ongoing basis. The term sourcing optimization refers to the analysis of all procurement inputs, often with the use of complex mathematical algorithms to come up with ways to optimize the sourcing and procurement process.

Cost is only one of the factors considered when implementing a sourcing optimization strategy. Among other things considered include the impediments to changing suppliers, the accessibility to other possible suppliers, and any opportunities to improve quality or adjust quality control processes.

Cooperative Sourcing

Some companies are exploring innovative sourcing business models when implementing a strategic sourcing plan. Cooperative sourcing normally refers to an arrangement in which companies form a partnership with other companies that have similar business objectives. Because each cooperating company can use the procurement resources of the others, it can often lead to lower costs of each company that participates.