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Strategic Sourcing Beats Old-School Price-Only Focus

作者： Hailey Lynne McKeefry 2025-03-14

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Traditionally, sourcing was about obtaining goods at the lowest possible price. A successful procurement pro would boast about getting a particular part or category of parts a few cents cheaper every year without fail.

In the long run, though, continuing to reduce prices isn’t sustainable, and it’s not good business. Instead, as an industry, procurement professionals have started to view their roles in terms of strategic sourcing. It’s a lens that is holistic and encompasses more than just price. Ultimately, it’s better for suppliers, OEMs, and the business landscape.

The strategic process

On the surface, it sounds relatively straightforward. Instead of the price of a product, procurement pros need to look at the total cost of ownership (TCO) of a particular component and then repeat that process for all or most of the items on the bill-of-materials (BOM).

It’s essential to understand the comprehensive meaning of “total cost.” It includes every cost associated with acquiring, using, and disposing of a product or service from a supplier throughout its life cycle. Possible considerations might consist of maintenance, logistics, and other indirect costs. The Chartered Institute of Procurement & Supply divides these costs into four rough categories:¹

Procurement costs: The amount paid to the supplier for the product, service, or capital equipment.
Acquisition costs: The cost of delivering the product, service, or capital equipment to the customer’s location.
Usage costs: The cost for converting the transaction into the finished product and throughout its useable life. For example, inventory, conversion, scrap, warranty, and installation.
End-of-life costs: The costs that accrue when a product or capital equipment reaches the end of its usable life, such as disposal, clean-up, and project termination costs.

Considering these factors, the goal is to identify a path that creates the best possible overall value, where the price is one factor on the list of considerations. When considering a vendor, the purchaser looks at what value a particular supplier can bring rather than simply how they can get a lower price (typically by high-volume and bulk buys). Rather than getting the lowest possible price while potentially settling on a mediocre product, the goal is to secure the highest quality product at that low price.

Big benefits

Businesses that invest in strategic sourcing raise their procurement expertise to a different level by assessing all the costs of the company's operations and considering how suppliers can bring value. It’s a global effort involving in-depth reviews of everyone involved and agreements that ensure an optimal positive impact on the company's operations.

Part of the reason strategic sourcing is possible is the evolution of software technology and its ability to collect and evaluate data from all over the organization. The global strategic sourcing marketanticipates a value of $677 million in 2025 and a compound annual growth rate (CAGR) of 7.2% over the next eight years, according to market research firm AMR.²

It’s important to understand that this category differs from procurement software, which focuses on operationalizing procurement activities. Sourcing platforms focus on the strategic process of identifying and selecting the best suppliers through market analysis and negotiation. Growth in the sector, which was 9.2% from 2023 to 2024 (Figure 1), can be traced to the need for organizations to optimize their sourcing processes.

Figure 1 : Growth in sourcing software is due to the need for organizations to focus on the strategic process of identifying and selecting the best suppliers through market analysis and negotiation. (Image source: AMR)

Step-by-step strategic sourcing

Of course, depending on the size of the company and its particular needs, strategic sourcing initiatives will likely look different for each. However, when done effectively, it can help an organization understand its goals, evaluate the current possibilities, choose the optimal path, and monitor on an ongoing basis. In general, the process can be broken into these steps (Figure 2):³

Analyze processes, product categories, and spending categories within the organization. Consider which departments are involved, how many are being bought, the location of the products, and the processes used.
Analyze the supply market to create a supplier portfolio. Examine risks and opportunities while considering the broadest range of potential costs, from raw materials to transportation of goods.
Create a cross-functional team to decide upon a sourcing approach that aligns with company goals. Are you in a competitive market? Do you have alternative sources for your current supply?
Research potential suppliers and ask them to submit a proposal based on your requirements concerning cost, products, legal terms, delivery times, and other conditions.
Review and compare sourcing options, asking for clarification from suppliers as necessary. (Note: This may include several rounds of negotiation to identify the best supplier.)
Integrate your chosen supplier into existing processes, focusing on communication. Consider the best ways to onboard new suppliers, vendors, and outsourcing partners effectively.
On an ongoing basis, monitor supplier performance to ensure you are achieving optimum value. Continue to optimize as needed over time.

Figure 2 : Strategic sourcing is a detailed, step-by-step process that helps an organization understand its goals, evaluate the current possibilities, choose the optimal path, and monitor on an ongoing basis. (Image source: simfoni)

Strategic sourcing is a more sophisticated and effective way to make procurement decisions. Further, we now have the technology to help develop, implement, and support strategic sourcing decisions. Once a novel concept, strategic sourcing strategies are taking their place in mainstream procurement.