Strategic sourcing

Strategic sourcing is the process of developing channels of supply at the lowest total cost, not just the lowest purchase price. It expands upon traditional organisational purchasing activities to embrace all activities within the procurement cycle, from specification to receipt, payment for goods and services to sourcing production lines where the labor market would increase firms' ROI. Strategic sourcing processes aim for continuous improvement and re-evaluation of the purchasing activities of an organisation. In the services industry, strategic sourcing refers to a service solution, sometimes called a strategic partnership, which is specifically customized to meet the client's individual needs. In a production environment, it is often considered one component of supply chain management. Modern supply chain management professionals have placed emphasis on defining the distinct differences between strategic sourcing and procurement. Procurement operations support tactical day-to-day transactions such as issuing purchase orders to suppliers, whereas strategic sourcing represents to strategic planning, supplier development, contract negotiation, supply chain infrastructure, and outsourcing models. The term "strategic sourcing" was popularized through work with a variety of blue chip companies by a number of consulting firms in the late 1980s and early to mid 1990s. This methodology has become the norm for procurement departments in large, sophisticated companies such as Fortune 500 companies. A United States federal memorandum issued in 2005 emphasised the collaborative and structured nature of strategic sourcing for government departments, defining the process as one of "critically analyzing an organisation's spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently".