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By: IBISWorld Staff Writer, Savannah George
Strategic sourcing has many benefits, but it may not always be the right approach for every organization and budget. The truth is, the most strategic practitioners know when to employ tactical purchasing and when to be more strategic to effectively achieve targets. To do this successfully, it’s important to understand the advantages of each approach and how to use them.
Tactical over Strategic
Tactical sourcing involves the administration of routine procurement transactions, such as the occasional ad hoc or one-time buy. The aim of this approach is achieving short-term goals, usually less than a year’s time, that can add up to achieving the company’s long-term goals. It may seem shortsighted but it can often be the best solution for an isolated situation.
To decide if a tactical approach is right for you, first you need to consider the tasks you need to accomplish in the short-term to successfully reach your company’s long-term goals. For example, if your long-term goal is getting the staff certified, the tactical approach would be breaking this down into smaller tasks: first purchasing the training for senior staff and then allowing them to certify their own teams by a set deadline.
Although the tactical approach may involve a one-time buy, like purchasing a copy machine or office supplies, a buyer still must know some fundamentals of procurement. To employ the tactical approach strategically, you must answer the following for each product or service sourced:
- Is it appropriate for the intended purpose?
- Will it meet quality expectations?
- Can it be delivered within the desired timeframe?
- Can the supplier provide the support necessary if or when things go wrong?
Once these questions are answered, you can then consider cost. If multiple vendors meet your desired criteria on quality and service, price can and may be the deciding factor.
For many small- and medium-sized companies with limited resources or manufacturers tasked with keeping product lines running, a primarily tactical approach may make the most sense. However, even for an organization that stays with a largely tactical approach, some strategic elements can still be applied.
Strategic over Tactical
Strategic sourcing is a long-term approach to purchasing current and future company needs at the lowest total cost of ownership and risk exposure. The aim of this is to ensure continuous improvement in cost, quality, delivery and experience while achieving optimal efficiencies. Strategic sourcing is a more proactive approach than tactical sourcing.
To decide if this approach is right for you, first you need to consider your company’s goals and resources. If your organization’s focus is on productivity, spend analysis, contracts and technology implementation, strategic sourcing is likely the method you should consider. However, this can require expensive technology and skilled human resources.
There are many benefits of a strategic approach, but there are also many steps on the journey to getting there. If you’re considering this method, here's a quick look at the steps involved.
- Identify a leader
- Build a business case
- Assemble a team
- Develop a strategic sourcing plan
- Monitor and revise
This process will help you find efficiencies to prevent wasteful spending and achieve larger company goals. But it’s most effective when used for long-term planning and goals. If you’re only looking to meet short-term company objectives or make decisions on the fly due to rapidly changing environments, a strategic approach may not be the best for your department.
The Hybrid Approach
For most procurement departments, utilizing both tactical and strategic sourcing together is most beneficial. Tactical sourcing is appropriate when you have to react to a current situation, while strategic sourcing is helpful for directing long-term, overall spend. For many procurement departments, a one-strategy-fits-all approach may hinder the ability to be nimble and meet company goals. There’s no correct answer when it comes to sourcing, but doing the right thing for the situation is always doing things right for the company.