Strategic Sourcing – A Bridge Too Far?

It is no secret that purchasing has a significant influence on cost. External purchases represent over half of cost in many firms. source While savings of up to 40% or more can be realized on these cost [Anderson and Katz, 1998]! Most companies have spent significant energy on volume consolidation and supply base optimisation, thus realizing up to 15% savings. Good sourcing processes and sourcing as a true strategic function can help your company realize up to 25% more saving. It can even help increase revenue. Imagine, sourcing as a profit centre, not just a cost centre.

A lack of sourcing skills can have dramatic results, as the recent Dutch government construction fraud case shows. In the past years, the government paid 30% too much for its construction projects. Public opinion speaks of fraud from the construction companies. However, a good government sourcing function might have prevented this from happening. Structural supply analysis and a thorough insight in supply cost structures could have made a whole lot of difference.

Introduction

The concept of sourcing is gaining popularity and impact in both organisation and management studies. There is no argument about that. Yet sourcing is still as far away from becoming an autonomous discipline as ever. The term sourcing is used for too many different purposes. There is just not one definition. Sourcing might be used in dialog with the purchasing process, or as a part of this process. Sourcing might be used for the process of acquiring input from multiple countries. Or sourcing is used as a synonym for outsourcing. When the concept of strategy is being introduced to sourcing, the definition becomes even more confusing. How can strategic sourcing be used if there is not even common ground on what sourcing actually means? This article will first create common ground by analysing definitions in search of a common denominator in order to suggest a new definition. Secondly, it will show that strategic sourcing is, in many cases, not as strategic as it is claimed to be, and suggests how strategic sourcing should be defined. Furthermore, a conceptual framework will be presented on how sourcing can be used as a true strategic function. Sourcing has come a long way; this article tries to make a first step on an even longer road that is still ahead.

Sourcing: finding a definition

As stated earlier sourcing is becoming increasingly popular and a very relevant topic in organization and management studies. Basically, the goal of all companies is sustainable and competitive selling of goods and/or services. In order to produce these goods and services input is needed. This input can be tangible, like raw materials or employees, or intangible, like information or skills. They all originate from some source and this is were sourcing activities come into play.

Several definitions of sourcing have been given in literature. ‘Sourcing is researching the market for potential input sources, securing the continuity of these sources, searching for alternative sources and keeping the relevant knowledge up to date’ [Vollman, Berry, Whybark, 1984, p. 148; van Weele, 1994].

Sourcing Management (Kraljic, 1983) is labelled as ‘Bottleneck Supply’ and consists of supply that is also uncertain, but of relatively low importance for companies in terms of volu

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