Strategic sourcing is a business activity in which a tactical method is used to procure materials required for consistent, high-quality supply-chain management. In strategic sourcing, a business gathers market intelligence on how to obtain supplies from reliable vendors in a cost-effective manner. The information gathered is then used to develop long-term relationships with vendors for the purpose of ensuring a steady source of supplies. A strategic sourcing plan's goal is an on-time supply of materials to meet production demand without unplanned delays.
Manufacturing firms stand to gain a significant benefit from an effective procurement process. Supply-chain interruptions can cripple assembly-line production and cause costly production shut downs. Even one supplier of a critical component can create a weak link in a supply-chain and severely affect production. In manufacturing operations, supplies from a variety of vendors may be required to meet production goals in a timely fashion. By using a strategic sourcing plan to ensure a variety of reliable vending relationships, a manufacturer attempts to avert shortages and production delays.
A strategic-sourcing plan rests upon gathering accurate market intelligence. Information on potential suppliers of the commodities the manufacturer must procure is analyzed, perhaps even on an ongoing basis. By analyzing both historical and current data on the available suppliers currently operating in the marketplace, a manufacturer will estimate the depth of the supply for a particular commodity. Some materials a manufacturer requires for production may be available only from a few limited sources. Other companies may be in stiff competition for access to these limited sources to ensure they have an adequate supply of the same item.
Through this intelligence-gathering process, a commodity profile may be created in an attempt to anticipate potential failures in the supply of that commodity from a particular vendor. This information is also used to locate those supply-chain vendors with a proven track record in contract fulfillment. In a procurement strategy, one goal may be to develop trusted relationships with reliable vendors. Then, if another manufacturer approaches that vendor, the vendor may stay loyal to the current manufacturing customer.
Another reason for strategic sourcing is to ensure minority and gender diversity in the supply chain. Many companies seek to achieve a more positive image in the public eye by touting a commitment to diversity. A supply-chain diversity initiative within a company is thought to bestow a competitive advantage, both in recruiting talent, as well as enhancing the company's public image.