Why’s Strategic Sourcing Essential In Procurement?

Why’s Strategic Sourcing Essential In Procurement?

As companies continue to utilize the power of globalization to improve their performance, the importance of sourcing products and services from vendors has become unavoidable.

Procurement is also evolving into a more strategic role connected with the firm’s aims and objectives. Furthermore, challenges like financial and political unpredictability, technological disruption, and other factors have made the market extremely competitive.

As a result, businesses must develop efficient strategic sourcing capabilities and processes to improve their business performance and efficiency as well as obtain a competitive advantage over their competitors. To do so, they need to understand what strategic sourcing is and why it’s crucial.

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Strategic Sourcing: Definition

Strategic sourcing is a reliable technique to build supply channels that monitors all aspects of the procurement process in order to achieve the minimum cost possible.

Strategic sourcing enables companies to pool their purchasing power to minimize the cost of ownership as well as supply chain risks. The strategy is a long-term process that requires constant reevaluation of the company’s sourcing efforts and alignment of the company’s goals with those of suppliers.

Why’s Strategic Sourcing Important?

Here are just some reasons why cost-efficiency is vital.

Cost Efficiency

Most firms reinvest a significant portion of their profits in the purchase of goods and services. By streamlining procurement and optimizing value across all collaborations, strategic sourcing lowers costs in the supply chain. The cost reductions can expand or stabilize other supplier relationships and inventory.

Establishing Trust

Traditional procurement prioritizes reducing purchasing expenses to the greatest extent possible. As a consequence of technological advancements, today’s supply chains span the world and are far more complex. In addition, the consumer is informed and more discriminating.

Developing relationships that benefit all stakeholders is one strategy to stay competitive. Strategic sourcing allows the procurement team to identify growth markets and supplier partnerships that aren’t adding value through ongoing market studies.

Risk Management

The objective of strategic sourcing is to improve relationships with all stakeholders. It considers suppliers’ creativity and adaptability in addition to the lowest cost.

A solid sourcing strategy establishes relationships with a wide range of multi-tier suppliers. The emphasis on continuous analysis and development leads to greater adaptability to external disruptors.

Bottom Line

This article explored multiple aspects of strategic sourcing, including what it means and how it varies from tactical sourcing, the benefits that strategic sourcing brings to businesses, and the process and variables that fuel its automation.

Strategic sourcing is being adopted by businesses to construct a comprehensive strategy to manage their sourcing requirements and to develop a more proactive response to supply chain interruptions. Organizations can improve their performance and attain a competitive advantage over their competitors. Furthermore, business divisions can maximize their sourcing by using effective sourcing solutions like Penny’s. Please contact us and let’s get started!



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Frequently Asked Questions

Penny is a cloud-based Procure-To-Pay system. penny helps you digitize and manage your full procurement cycle from request to approval. Manage RFQs to vendors, compare quotations, send POs and even payment. penny was designed to make things easy and consolidate all of your organization’s spending needs into one intelligent system.

  • Allocate, manage and monitor budgets by expense accounts, projects, departments, location, teams..etc 
  • Streamlining procurement means requests, approvals, and POs won’t be lost in emails or offline.  
  • History and records of requests and purchases can be extracted and tracked easily via the platform. 
  • Product requests are more accurate through the catalog, and hence avoid purchasing mistakes.
  • Reports and analysis can be extracted from the platform, giving you a consolidated data center for all your procurement activities.
  • penny is cloud-based and an easy to use platform. The action-board gives your team a user-friendly and simple experience.

Yes, penny is designed to handle complex procurement operations. We make EVERYTHING simple. Via the contract management feature, you can set the terms and conditions of your contract, and the system will recognize the products and the vendors of your request and match it with specified terms of your contract. Easy.

Putting you in control of your spending is integral to our mission. penny allows you to create Expense Accounts that match your P&L, and assign budgets to them. For example, you can assign $X for your “Travel Budget” and reflect on the budget before approving a travel request. In addition, penny allows you to set budgets for cost centers like projects, departments, locations, and so much more. With penny, you can extract reports and view your spend per Expense Accounts or cost center.

Yes. If your product search finds no results, you can submit a non-standard request.

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