Strategic Sourcing, Essay Example

The concept of strategic sourcing emerges as a response to a specific problem related to the area of procurement: how can a company achieve the lowest possible cost for supply channels? This conceptual innovation marks a significant development in theory, in so far as strategic sourcing is not only concerned with the lowest total purchase price, but with the lowest possible cost of all procurement actions. (Owens et al., 1998, p. 285) In other words, from the perspective of strategic sourcing, acquiring necessary supplies for a business is not ultimately defined by the cost of purchasing these supplies, but by developing cost-saving strategies for all supplies in general. A company may, according to strategic sourcing, attempt to develop new supply sources, which “provide advantages in quality, speed, or cost effectiveness.” (Owens et al., 1998, p. 285) Hence, if a company that produces ball bearings needs steel materials to make its product, it will not only look at existing steel producers in its local market and choose the right supplier based on the prices they offer, but may, for example, consider alternative sources for this product based on price. For example, a company may enter into a partnership with a nascent steel producer in a foreign country, understanding the long-term savings it will earn with such an arrangement.

In this regard, strategic sourcing appears to be a necessary addition to the concepts of logistics. To the extent that acquiring the lowest possible cost for required products is a necessary condition to the viability of any business, the search for lowest possible cost should extend beyond the immediately available options on the market. In this sense, the advantage of strategic sourcing is precisely in that it takes a “bigger picture” perspective, seeking out possible means for cost-saving measures that would not be visible if the company took a more conservative approach.

Nevertheless, the concept itself implies many questions: can strategic sourcing be accurately applied, to the extent that there seems to be an almost infinite number of possibilities for cost-saving measures, especially in the context of free trade and globalization? In other words, if a company applies strategic sourcing concepts, can it truly be satisfied with its final decision, since other, superior, options may always potentially exist? When a company employs a “bigger picture” perspective such as strategic sourcing, can it ever be certain that it has fully grasped this “bigger picture” and made the appropriate procurement choice?

References

Owens, G., Vidal, O., Toole, R., and Favre, D. “Strategic sourcing: Aligning procurement needs with your business goals”, in J. Gattorna (ed.) Strategic supply chain alignment: Best practice in supply chain management. Burlington, VT: Gower, 1998. pp. 285-301.