Strategic sourcing methods use a procurement process that has integrated Dr. W. Edwards Deming’s continuous improvement processes with the purchasing habits of an organization. Evaluation of purchasing outcomes are continuously evaluated and modified based on results which enables supply chain risk management. The process is ongoing, and assists with ensuring the organization is operating at maximum efficiency.
Strategic sourcing methods are primarily used in a production environment, however, they can be applied to services and capital. Common elements of this model are scrutiny of a company’s spending, analysis of vendors and suppliers, analysis of how much it costs to produce goods and services, recognizing and identifying quality providers, creation of strategies to obtain goods and services through demand and supply, negotiating prices and agreement particulars, strategic momentum for new processes, and monitoring results and assessing outcomes.
Supply chain risk management sourcing methods have been around since the late 1980’s and early 1990’s. The process is most common among large organizations utilizing centralized management delivery systems. Sourcing optimization systems use rigorous techniques so better decisions can be made. Consequently, sourcing decisions are based on the scientific method of analyzing complex problems or situations that have multiple variables and interactions between variables i.e. multivariate analysis.
Applying this methodology is helpful for sourcing professionals as they are typically responsible for identifying and evaluating procurement opportunities. This method enables sourcing managers to not only assess procurement variables, but also enables correlative analysis of market conditions, supply and demand of products and services, as well as supplier variables to all be taken into consideration prior to a decision.
Cooperative sourcing is another type of sourcing that can be applied to reduce risk and cost. Cooperative sourcing is when two or more organizations with the same or similar business methods collaborate or barter to reduce costs. The competitor with the most efficient production process can utilize the business process of their competitors to cut costs. However, it is important to note it can be quite a daunting task to identify a stable enough environment to apply the Cooperative sourcing model.
In addition, when applying the cooperative sourcing model, it is nearly impossible to accurately estimate production costs. Moreover, during the negotiation process, costs may be inflated so higher fees can be used. Essentially, the cooperative sourcing model has potential for both parties to have a conflict of interest with the negotiation. Nevertheless, if the collaboration has a solid foundation, and a proven track record, cooperative sourcing may be a good choice.