Strategic Sourcing: The Key to Competitive Advantage

Strategic Sourcing has been used by companies of all sizes for years. However, priority is always given to negotiation and cost-cutting projects. In this guest commentary, Professor Schoenherr will share some insights. He is an expert in procurement and decision making and he will provide some strategic planning principles that practitioners can use to create a more sustainable competitive advantage.

Long gone are the times when a company could rely on its own strengths and ensure its competitive advantage. In our hypercompetitive market environment, which is characterized by customers demanding products and customer service that are “faster, better, and cheaper”, the help of supply chain partners is needed. In international business, purchasing thus underwent a significant shift from being rather transactional and tactical to a more strategic function, able to influence company growth. This commentary highlights some key principles of strategic sourcing.

Involve suppliers early in new product (or service) development initiatives
The supplier can be an invaluable source of ideas and knowledge, especially as it pertains to the materials or services you are sourcing from them. Involving suppliers early in the new product (or service) development team is thus crucial. Rather than developing a prototype in-house and then sharing it with suppliers, with the supplier then responding with some great ideas for modification, why not involve them much earlier than that? This way, these ideas can be incorporated into the product or service design operations much earlier, shortening the product development timeline, employing resources more effectively, and leveraging the product (or service) expertise of the supplier.

Source capabilities, rather than mere products or services
Strategic sourcing requires a shift in mindset, in which you view suppliers not only as the mere providers of products, services, or inventory but as the owners of unique capabilities that you may be able to obtain from them as well. Such capabilities can include unique know-how or knowledge assets, specialized research, and development capabilities, expertise in quality management like six sigma, or a sophisticated logistics infrastructure that you may be able to tap into. Sourcing such capabilities from suppliers alleviates the need for you to develop these capabilities yourself, so you can maintain an asset-light footprint, and thus enhance flexibility and responsiveness.

Ensure long-term sustainability of suppliers
Having suppliers that are willing to share ideas and collaborate early on in new product development, as well as suppliers that are willing to offer you to tap into their capabilities, is great. Such supplier relationships, however, do not develop by themselves. It needs active work by the purchasing professional to develop suppliers, nurture their collaboration and trust, and make them feel equal. This implies that suppliers are treated fairly and equitably, for example allowing them to have a reasonable profit margin to ensure their long-term sustainability (as seen in the lean manufacturing initiative.) Further, acting on behalf of the buyer can include extending engineering expertise and help, if needed, to the supplier, for instance improving their manufacturing processes, or the provision of credits should the supplier be in a less advantageous situation economically.

Strategic sourcing is about managing supplier relationships, treating suppliers as valuable partners, and encouraging idea exchange. However, in concluding, I must mention a caveat. As with many things in life, one size does not fit all. While the approaches described above work great with suppliers for important materials and or services, they should however not necessarily be employed in every single relationship. After all, strategic sourcing takes time and resources, and a strategic sourcing relationship cannot possibly be formed with every single supplier a company maintains (this would be cost and time prohibitive). The above approaches should thus be reserved for suppliers providing strategically important materials and services that are crucial to the company.

About the Contributor:
Dr. Tobias Schoenherr is a professor at Michigan State University.

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Last review and update: July 5, 2022
About the Author and Editor:
Ben Benjabutr is the author and editor of Supply Chain Opz. He holds an M.Sc. in Logistics Management with 10+ years of experience. You can contact him via e-mail or Twitter.