Please share your views on Difference between Strategic Sourcing and Tactical Sourcing.
And for the cynics out there: Purchasing became Procurement. Procurement became Sourcing - and then Sourcing became strategic. Except - when it boils down to it - you visit 99/100 "Strategic Sourcing" teams - they just buy stuff. For the best price they can get, whilst ticking all of the compliance and risk management boxes (or better still - push that responsibility over to their suppliers). More risk management is not strategic. True partnership arrangements are strategic, but most strategic sourcing teams don't go there, because it involves trust and risk. So most just buy stuff the old fashioned way and give it a fancy name.
In two years' time, I'm sure another name will become popular for the same activity.
Tactical is choosing the best offer on the table. Strategic is desiging and building the table.
Strategic Sourcing is more holistic approach to finding long term solutions. Think of it as planning and goal setting from the 100,000 foot level. Tactical sourcing is the act of executing to the strategy, finding the specific source that meets the objective.
Both can be narrowed down to what I call the micro level, whereas a broad strategy is put in place for a specific source and a more narrowly focused set of conditions are managed to meet the strategic goal.
The robots are coming! To make a sweeping prediction, strategic sourcing roles will always need people, while tactical roles can be automated. So, if you're tactical, it's time to get strategic!
Strategic sourcing is a procurement process that seeks to maximize the use of money in sourcing for tangible and intangible products. According to Engel (2004) and as represented in " executive insight into strategic sourcing" 1st edition, by Prof. Douglas Boateng, it is an organized and collaborative approach to leveraging targeted spend accross locations with select suppliers that are best suited to create knowledge and value in the customer-supplier interface.
It takes into accounts the total acquisition cost of ownership (TACO) and focuses on the medium to long-term impact of procurement activities.
Tactical sourcing, on the other hand, may basically focus on the short to medium term needs of the organisation and society. It may use the "hand to mouth" approach to "just" buy goods and services to satisfy a need without regards to its long term impact.
Put simply, I think Strategic Sourcing is where you take time to think about what you are doing before you start ;-) However, there is a place for both strategic and tactical sourcing, some procurements will stay in the strategic space through the whole cycle, some will start and finish tactical, while others will start as part of a strategic plan and spin off to be a tactical approach to deliver the requirements, i.e., some products benefit from spot buyng and that will be out strategy.
Tactical is all about responding to demand and just getting it done. If it is done well, it is about agility and adaptability, identifying and shifting to meet the changes as they come. This could be changes to demand or changes in the market. Of course the most common form of tactical procurement is a combination of business teams who don't plan well and procurement teams that are understaffed. With that mix you are going to live in tactical land and it is often viewed negatively. But given time and some foresight, the ability to get strategic can grow. This is where the history of buying is considered, the volume and patterns of projected demand, the capabilities of the market and the optimal product mix.
The last one is the main reason that category management does not belong in any environment other than manufacturing or retail. Strategic procurement should consider if I combine demand A with demand B, what will the benefits be, whereas catagory management encourages the subdividing of demand into descrete units to end up with a product on a shelf or a part in a production line. If your organisation buys services or has project drive demand, think carefully before implenting a category management strategy.
Uses on-line search engines to find suppliers.
Assumes “low cost countries” are always the preferred locations for manufacturing.
Practices offshoring, nearshoring and occasionally reshoring.
Approaches negotiations as if they are a zero-sum game.
Uses only quantitative measures to qualify a new supplier.
Scapegoats suppliers for supply chain problems.
Reactive approach to fixing problems using corrective actions.
Believes supplier price is driven primarily by negotiation leverage.
Utilizes on-line bidding wars to threaten key suppliers.
Pushes for contracts with one-sided, onerous requirements.
Flows down diktats to the supply chain.
Only contacts suppliers when there is a problem.
Demands suppliers are open book on costs to dictate their profitability.
Strives for lowest Ex-Works cost.
Pushes as much cost as possible onto the suppliers.
Leverages a network of industry contacts for recommendations.
Begins the sourcing process with no geographical bias.
Focuses on Right shoring.
Practices the art of win-win negotiations.
Gives equal weight to qualitative measures such as cultural fit when qualifying new suppliers.
Examines each supply chain problem for shared responsibility and mutual resolution.
Pro-active approach to preventing problems using preventive actions and design for quality.
Works with engineering teams on early stage DFMA since 70% or more of costs are designed into a part.
Partners with suppliers to mutually find ways to cost-down.
Negotiates contracts that recognize the value of long-term relationships.
Builds and develops value chains.
Regularly communicates with suppliers to build relationships.
Shares cost information with suppliers for mutual benefit.
Calculates total cost of ownership (TCO).
Examines whether a cost is the responsibility of the supplier or customer.