What is Strategic Sourcing?

Definition: A systematic and fact‐based approach for optimizing an organization's 
supply base and improving the overall value proposition.

What it is What it is NOT
Focused on the Total Cost of Ownership (TCO) incorporating  Focused ONLY on cost
customer needs, organizational goals, and market conditions
G tti th b t
Getting the best product/service at the best value
d t/ i t th b t l G tti th h
Getting the cheapest product/service
t d t/ i
Driven by a rigorous and collaborative approach Ad‐hoc activities involving only purchasing
Addresses all levers for savings Focused on “beating up suppliers”
Decisions based on fact based analysis and market 
Decisions based on fact based analysis and market Decisions based on opinion, unjustified preference, 
Decisions based on opinion unjustified preference
intelligence or complacency 
A continuous process A one‐time project or decision

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Scope of Strategic Sourcing?
The scope of strategic sourcing extends beyond supplier price negotiation and takes 
into account the total cost of ownership

Amount paid to suppliers Purchase
Price

Demand 
Drivers

Specifications

ocu e e t
Procurement  Total 
Inventory 
Inventory
Practices acquisition cost
Practices

Internal 
Internal Policies  Processes
Operational 
Operational
& Procedures Practices

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Advantages of Strategic Sourcing?
Best practice 
sharing
Create 
C t
partnerships 
with  Cost savings
suppliers

Access  Strategic  Increase 

to new 
Sourcing quality
suppliers

Improve 
operational  Spec
efficiency
ffi i
Standardize 
pricing

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Objectives of Strategic Sourcing?
Objectives of strategic sourcing surround the reduction of cost while maintaining 
Obj i f i i d h d i f hil i i i
or improving quality

Improve the value‐to‐price 
p p
Understand category buying & 
U d t d t b i &
relationship (i.e. achieve cost 
management process to identify 
reductions while maintaining or 
improvement opportunities
improving quality/service)
Objectives
Develop & implement multi‐year 
Examine supplier relationships  contracts with standardized terms 
across the entire organization and conditions across the 
organization

Share best practices across the 
Share best practices across the
Leverage entire organization’s spend
organization

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