Strategic Sourcing Vs Operational Sourcing

Sourcing activities can be broadly be identified as operational sourcing and strategic sourcing

Operational sourcing is more operational in nature i.e. the demand comes from the requesters and the request is linked directly to the operations of the organization.. Various terms are used to describe this kind of sourcing, some of them being -- Operational, Responsive, or Tactical sourcing. Most of the companies have this type of sourcing. Operational sourcing is highly critical for manufacturing organizations that rely heavily on the "Direct" or "MRO" materials.

Strategic sourcing is more strategic in nature. The starting point for strategic sourcing process typically could be -- Spend Analysis, or Strategic Initiative from the top management. For this kind of sourcing, various terms such as -- Strategic, Collaborative or Proactive sourcing – are used. The majority of large scale companies have this kind of sourcing process. This kind of sourcing is more critical and widely used in

• Service oriented industries (e.g. Financial Services, Pharma, Retail, Public Sector, etc.) where there exist a huge savings opportunities in "Indirect" and "Services" spend

• Fast changing industries e.g. Life Sciences, media, where managing collaboration/partnership with strategic suppliers is becoming more and more critical with fast changing technologies.

The operational sourcing can be handled well by both SRM and SAP Sourcing. The main differentiator of E-Sourcing solution is that it can handle not only the operational sourcing but also the strategic sourcing.

In operational sourcing scenarios, the demand always gets started by the requesters (e.g shopping carts, purchase requisitions. The procurement / sourcing / purchasing team tries to fulfill these requests from operations. The purchasing team might utilize strategically defined contracts or agreements with various suppliers to source these requirements.

In Strategic Sourcing scenarios, the demand does not come from requesters or operations. The strategic team performs the analysis of spend and sets the goal for sourcing activities eg. reduce IT spend by 10%, reduce travel spend by 20%. Then, a strategy or a plan is devised to achieve this savings goal, supplier development goal, or contract renewal goal. Team responsible for strategic sourcing creates contracts , agreements with various vendors to increase savings. They generally utilize RFI , RFP , RFQ, Auctions etc for this activity.