What Strategic Sourcing Looks Like When Someone Runs It Properly
Strategic sourcing is one of those phrases that gets used to mean quite different things depending on who’s using it. For some businesses it means running an RFQ instead of just picking up the phone to the incumbent. For others it’s a category strategy document that lives in a Sharepoint folder and gets updated once a quarter. For a good number of finance directors I’ve spoken to, it’s what procurement people occasionally do that produces a saving they can put in the budget.
None of those definitions are wrong exactly. They’re just partial views of something that, done properly, is quite a bit more than any of them.
In my experience, strategic sourcing done well is a fairly straightforward discipline. You take a spend category, you work out what your business actually needs from it over the next few years, you understand what the supply market can and can’t offer, and then you go to market in a way that lines those two up. What comes out is a commercial arrangement that reflects the real balance of power and risk, and gives the business a defensible position when the market moves.
The mistake most businesses make is treating sourcing as an event rather than a process. A tender goes out, replies come back, someone makes a decision, and the whole thing is filed away until the contract is up. Three or five years later the same tender goes out again in more or less the same shape, the incumbent normally wins, and everyone treats it as a well-run competitive process. That’s transactional sourcing dressed up in strategic language, and when it doesn’t work, the reasons tend to be the same. Nobody defined what good looked like before the RFQ went out. The market analysis was a Google search. The scoring criteria were built around price because that’s the easiest thing to argue about at panel review. And the resulting contract has terms that suit the supplier at least as much as they suit the buyer.
Where sourcing starts
Sourcing that lands well starts before anything goes to market. You need to understand the category on your own terms. What are the real drivers of cost. Who actually makes the product or delivers the service, versus who invoices you. What are the alternatives to buying it this way at all. Where does your business’s demand sit in the supplier’s book. That last question matters more than most buyers realise. Being 2% of a supplier’s revenue is a very different negotiation from being 20%, and the way you frame the opportunity when you go to market should reflect that. Getting that framing right is where a proper procurement strategy does most of its useful work.
Then there’s the question of what you’re actually buying. It sounds obvious, but a large number of the sourcing exercises I’ve reviewed have specifications that don’t match the operational reality. Engineering wants one thing, operations wants another, finance wants the third, and the RFQ ends up as a compromise that pleases nobody. Sourcing that produces a good outcome starts with an honest internal conversation about what the business genuinely needs, what it would like, and what it can live without. That conversation is uncomfortable and it takes time, which is why it usually gets skipped.
The bit about the market that people skip
The market side of the equation gets less attention than it deserves. Any decent procurement person will tell you they analyse the supply market before going out. What they often mean is that they’ve spoken to two or three suppliers and looked at revenue figures on Companies House. Proper market analysis takes longer and looks harder at things like capacity, competitive dynamics, cost structure and where the market is heading. Without that, you go out blind. You can still get a competitive tender back, but you won’t be able to tell whether it’s competitive because the market is competitive, or because the two suppliers who happened to want the work that week priced it keenly.
Once you understand your own needs and the market’s shape, the sourcing itself becomes more predictable. The tender is designed around what matters commercially. Scoring reflects total value rather than headline price. Terms are shaped by the risks the business actually cares about, which usually means service continuity, cost transparency, and the ability to walk away without paying to leave. Negotiation is done on evidence rather than feel. The contract that comes out at the end is a document the business can actually operate, which is not always the same as the document the legal team likes.
That last point is where a lot of sourcing programmes come unstuck. A well-run tender that produces a contract nobody understands operationally is a wasted piece of work. If the person managing the supplier day to day doesn’t know what the SLAs actually mean, doesn’t have the reporting to check them, and doesn’t have anywhere obvious to escalate when something’s wrong, the commercial arrangement drifts. Eighteen months later you’re back where you started. That’s why the procurement governance side of the process needs to be designed at the same time as the tender, not handed over to whoever ends up owning the supplier and hoping for the best.
A tender and strategic sourcing are not the same thing
I tend to be a bit sceptical when businesses tell me they have already done strategic sourcing on a category. Sometimes they have. More often they have done a decent tender. It is a real distinction, because strategic sourcing produces different things over time. Better prices, usually. Also better working relationships with the suppliers that matter, cleaner exits from the ones that don’t, and a business that is less exposed when a supplier fails, prices move or the operational need changes. It also tends to mean the list of “strategic suppliers” is a bit shorter, and that someone has spoken to them recently.
For a mid-market business, the honest question is which categories deserve the effort. Not every category needs a full strategic treatment. Stationery doesn’t. Facilities cleaning probably does. IT infrastructure certainly does. Working out that split sensibly, and being disciplined about spending the effort where it earns its keep, is part of running procurement well.
If you’re not sure how the categories in your business break down that way, that is usually a decent place to start a conversation.