Strategic sourcing
Is about managing the cost of purchase of goods and services. Can also be defined as the
strategic management process where by commodities and suppliers are analysed and
relationships are formed and managed according to the best practices and appropriate strategies
in support of long term organisational goal. Ref pg 60
Explain the strategic sourcing process
1)Build the team
Strategic sourcing process starts with the building of a multifunctional teal which may consists
of a purchasing manager, operation manager, information system manager, financial or
marketing manager, an engineer and legal advisor.
2)Conducting market research
Team should fully understand the relative importance of the item or service for reaching business
objectives. They should make a spend analysis of total expenditure for each commodity and
supplier and spending on the commodity as a percentage of total spending.
3) Developing a strategy
Information gathered must be structured by applying the portfolio analysis matrix or strategic
sourcing matrix where by total spending is divided into different catergories according to the
risks involved.
Four catergories of the product are: routine, leverage, bottleneck, critical.
Routine items-supply risk are low, many suppliers, high availability, standard specification, low
amount to spend and easy substitution possibility. e.g Stationery like pens
Leverage items-supply risk are low,available alternative source of supply, standard product
specification, large amount is spend,substitution is possible. Tenders and quotes can be used as
the method of choosing a supplier. e.g computer hardware
Bottleneck items-risk are high, the market is monopolistic, specification and manufacturing are
complex, low amount spent,substitution is difficult.e. g fuel supply, often sorcing had 2 be done
across country borders.
Critical items- risk are high, there is a limited or no competition, spend is high, difficult
substitution, design and quality are complex and critical.e.g sourcing components for mining
machines.
4)Negotiating the contract
The contract is negotiated with the identified supplier and the strategy is implemented in terms of
timelines, resources and accountability
5)Managing supplier relationships
An appropriate relationship should be formed and managed. The basis for managing a
relationship should be the performance evaluation of suppliers. Pg 61 and 62
Is about managing the cost of purchase of goods and services. Can also be defined as the
strategic management process where by commodities and suppliers are analysed and
relationships are formed and managed according to the best practices and appropriate strategies
in support of long term organisational goal. Ref pg 60
Explain the strategic sourcing process
1)Build the team
Strategic sourcing process starts with the building of a multifunctional teal which may consists
of a purchasing manager, operation manager, information system manager, financial or
marketing manager, an engineer and legal advisor.
2)Conducting market research
Team should fully understand the relative importance of the item or service for reaching business
objectives. They should make a spend analysis of total expenditure for each commodity and
supplier and spending on the commodity as a percentage of total spending.
3) Developing a strategy
Information gathered must be structured by applying the portfolio analysis matrix or strategic
sourcing matrix where by total spending is divided into different catergories according to the
risks involved.
Four catergories of the product are: routine, leverage, bottleneck, critical.
Routine items-supply risk are low, many suppliers, high availability, standard specification, low
amount to spend and easy substitution possibility. e.g Stationery like pens
Leverage items-supply risk are low,available alternative source of supply, standard product
specification, large amount is spend,substitution is possible. Tenders and quotes can be used as
the method of choosing a supplier. e.g computer hardware
Bottleneck items-risk are high, the market is monopolistic, specification and manufacturing are
complex, low amount spent,substitution is difficult.e. g fuel supply, often sorcing had 2 be done
across country borders.
Critical items- risk are high, there is a limited or no competition, spend is high, difficult
substitution, design and quality are complex and critical.e.g sourcing components for mining
machines.
4)Negotiating the contract
The contract is negotiated with the identified supplier and the strategy is implemented in terms of
timelines, resources and accountability
5)Managing supplier relationships
An appropriate relationship should be formed and managed. The basis for managing a
relationship should be the performance evaluation of suppliers. Pg 61 and 62
