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Supply chain disruptions driven by inflation, global uncertainties, and climate factors continue to challenge businesses.

To stay competitive in this unpredictable environment, companies need a smarter approach to procurement—one that goes beyond cost-cutting and short-term fixes.

Strategic sourcing offers a solution.

This holistic discipline helps organizations proactively navigate risks, optimize supplier relationships, and drive long-term value.

In this article, we’ll explore the five key best practices that can help you achieve sourcing success.

Aligning Sourcing with Overall Business Needs

For strategic sourcing to be truly effective, it must align with core corporate objectives and adapt to evolving business priorities.

Even in small organizations—let alone large enterprises—this is often easier said than done.

Conflicting interests, shifting priorities, and vague guidelines can complicate the process.

For instance, should supplier selection focus primarily on cost savings, or should quality and delivery reliability take precedence?

How do factors like fair labor practices and sustainability fit into the equation?

These and other key factors must be clearly defined within corporate strategy and turned into an actionable sourcing strategy.

The model below, outlined in a master’s thesis, is based on a large European corporation and shows how strategy flows through its sourcing operations.

Source: AaltoDoc

This model illustrates how, at least in theory, sourcing should align with overall business needs.

Once a company defines its values, goals, and priorities, these must be translated into specific targets and KPIs within the sourcing strategy to ensure execution.

A cross-functional strategic sourcing team is essential for maintaining this alignment and enabling effective decision-making.

To start, this team should include key stakeholders from procurement, finance, operations, logistics, IT, legal, R&D, and other departments directly impacted by sourcing decisions.

Source: Veridion

Since the team’s goal is to establish clear guidelines for sourcing activities, it should also include members with expertise in:

• Risk management
• Quality assurance
• Contract management
• Supply chain planning
• Regulatory compliance

As supply chain analyst David Food highlights, the true strength of a cross-functional team is in the diverse knowledge and experience each member brings:

Illustration: Veridion / Quote: LinkedIn

Once the team is in place, its first task is to gather internal data and conduct external market research—the next best practice on our list.

But before that, a few key considerations:

Since the sourcing strategy stems from corporate objectives, these objectives must be as specific as possible to guide procurement decisions effectively.

One of the biggest challenges is securing management buy-in with enough decision-making authority.

Their role is crucial in clarifying sourcing priorities, defining long-term goals, and providing guidance on how to balance factors like cost, quality, ethics, and sustainability.

Ultimately, your strategic sourcing team should:

• Define the ideal supplier profile for long-term growth
• Communicate it across procurement and relevant stakeholders
• Maintain open channels to adapt to changing company needs

With this foundation in place, the next practice is just as critical.

Using Data to Drive Better Decisions

Leveraging data to make more informed decisions is at the heart of strategic sourcing.

It all starts with analyzing your company’s historical spend along with the performance of your current suppliers and related risk factors.

Without these insights, inefficiencies and overlaps might go unnoticed, thereby skewing the effectiveness of your strategic sourcing decisions.

Today, real-time visibility into spend data and procurement processes is nearly impossible without technology.

It’s no surprise then that digital transformation is a top priority for over 70% of companies surveyed by Deloitte.

Here are the top five priorities of CPOs from that survey:

Illustration: Veridion / Data: Deloitte

Of course, digital transformation looks different for every company, depending on its current level of technology adoption.

However, making better sourcing decisions typically requires a centralized database where all relevant data is stored.

This could be an enterprise resource planning (ERP) system, a spend management platform, or a procurement automation solution.

Regardless of the tool, the key objective is to consolidate internal spend data in one place for effective analysis.

Source: Coupa

When spend data is centralized, the identified inefficiencies—such as overspending in indirect categories or overreliance on a single supplier—help you streamline sourcing decisions.

However, internal data alone isn’t enough.

To make truly strategic supplier decisions, you also need accurate, up-to-date, and reliable external data.

After all, supplier identification, evaluation, and selection require real-time market insights.

Some procurement solutions provide access to a database of preferred suppliers, but these can be restrictive and fail to offer a comprehensive view of the market.

A more effective approach is using a global, continuously updated supplier database powered by AI-driven data collection.

One such solution is our Veridion.

Source: Veridion

In a nutshell, you can use Veridion to:

• Find new eligible suppliers in minutes instead of weeks
• Ensure your supplier profiles are enriched with the latest data
• Assess and monitor risks related to both potential and current suppliers
• Benchmark your suppliers against others based on real-time market intelligence

These capabilities are essential for making informed sourcing decisions—especially since up to 30% of supplier data can change each year.

Source: Veridion

When Veridion’s real-time intelligence is combined with predictive analytics, you can also:

• Forecast demand shifts
• Anticipate pricing fluctuations
• Receive alerts about potential supplier failures

Overall, leveraging both internal and external data to drive better sourcing decisions is the ultimate best practice for successful strategic sourcing.

Cultivating Strategic Supplier Relationships

Not all supplier relationships are—or should be—equal.

Transactional supplier relationships typically focus on short-term cost savings, basic order fulfillment, and contract compliance.

Here, suppliers are often interchangeable, chosen primarily based on price and availability.

In contrast, strategic partnerships prioritize long-term collaboration, mutual benefits, and shared goals.

Accordingly, strategic suppliers are valued for their reliability, innovation, and ability to align with your company’s objectives.

Investing in these partnerships pays off—suppliers who feel valued are more likely to prioritize your business.

In fact, a HICX survey shows a significant difference between suppliers going the extra mile for their most important customers versus their important customers-of-choice.

Illustration: Veridion / Data: HICX

The main distinction between being a supplier’s most important customer and a customer-of-choice lies in how the buyer treats the supplier—as a valued partner rather than just a vendor.

This difference in supplier engagement isn’t surprising.

After all, it’s human nature to go above and beyond for those who show us respect and appreciation.

So, how do you cultivate strategic supplier relationships?

It all starts with transparent communication, clear expectations, and a collaborative mindset.

Beyond that, companies use various initiatives to strengthen supplier relationships, such as:

• Engaging in joint product development with suppliers
• Offering support for supplier process and technology upgrades
• Selecting and enrolling suppliers into preferred supplier programs

For example, suppliers in the preferred supplier program of Austrian retail chain SPAR gain access to a broad network of SPAR’s international partners, expanding their market reach.

Source: SPAR

This program focuses on identifying top-performing suppliers in key areas such as refrigeration, lighting, shopfitting, and data analysis, and granting them “preferred supplier” status.

Beyond access to business opportunities with SPAR and its partners, preferred suppliers are further incentivized with performance-based annual bonuses.

These bonuses are used to reward their commitment to quality, reliability, and innovation.

This ties into another crucial aspect of cultivating strategic supplier relationships—consistent performance monitoring.

After all, strong relationships are based on transparency, accountability, and trust, all of which need to be established first.

This is best achieved by tracking key supplier performance metrics, some of which are shown below:

Source: Veridion

Effective strategic sourcing relies on continuous KPI tracking, regular supplier performance reviews, and proactive risk management.

These measures ensure that suppliers not only meet contractual obligations but also address issues promptly and remain open to improvements.

However, while performance monitoring enhances transparency, the human element remains just as critical.

Suppliers who feel valued and engaged are more likely to offer innovative solutions, prioritize your business, and align with your long-term goals.

Strategic supplier relationships—when actively nurtured—lead to a more resilient supply base, improved service levels, and lower costs over time.

Limiting the Number of Bidding Rounds

Many procurement projects involve some kind of bidding.

If several suppliers can meet your specifications, a competitive bidding process helps identify the best option based on factors like price, quality, and service.

The process typically starts with an invitation to suppliers, asking them to submit proposals or quotations for the required goods or services.

Source: X

Once bids are received, the process can enter the negotiation stage, where the procurement team evaluates proposals based on factors such as price, quality, and supplier reliability.

At this stage, strategic sourcing considerations—like supplier innovation, sustainability, and potential for long-term partnership—also play a critical role.

Alternatively, the process can involve several bidding rounds, where shortlisted suppliers are asked to refine their offers based on feedback or competing bids.

This iterative approach can help secure better terms, but if prolonged, it may also lead to delays or supplier disengagement.

Similarly, in cases of online procurement events—such as reverse auctions—multiple bidding rounds may be used to drive competitive pricing.

Here, many auctions operate on the “soft clock” principle.

Edmund Zagorin, Founder & Chief Strategy Officer at Arkestro, explains what the soft clock means:

Illustration: Veridion / Quote: LinkedIn

In such cases, if the number of rounds is unlimited, bidding can continue indefinitely, with each new bid extending the auction further.

Excessive bidding rounds can lead to diminishing returns.

Suppliers may become disengaged, frustrated, or even feel pressured to lower their standards to win the contract.

To prevent inefficiencies and unnecessary delays, it’s crucial to establish a structured bidding process with a predefined number of rounds.

Here’s an example of an auction where, despite using a soft clock mechanism, the number of bidding rounds is limited.

Source: Open Procurement

Beyond online bidding events, prolonged negotiations in any procurement process can lead to supplier fatigue and delays without adding real value.

To recap, when bidding is involved, it’s essential to strike a balance—ensuring enough rounds for fair supplier evaluation while setting a clear limit in advance.

Evaluating Total Cost of Ownership

Although this best practice is listed last, it is, along with aligned needs and accurate data, one of the core principles of successful strategic sourcing.

The Total Cost of Ownership (TCO) approach recognizes that choosing a supplier based solely on the lowest purchase price is, at best, a short-sighted and, at worst, a costly mistake.

From scams to subpar products, low-cost sourcing can lead to higher long-term expenses due to faulty deliveries, customer complaints, and reputational damage.

That’s why TCO analysis goes beyond easily comparable purchase prices to account for hidden costs.

As shown below, these costs range from import duties and shipping to installation, maintenance, and even the cost of poor quality.

Source: Veridion

A TCO analysis should factor in all direct and indirect costs associated with a product or service.

Even though some costs—such as quality issues or long lead times—are harder to quantify, they still impact overall expenses and should be considered.

Remember, strategic sourcing is about long-term value, not just short-term savings.

That’s why TCO analysis is closely tied to supplier selection, helping companies identify partners that align with their long-term priorities rather than just price.

This is also where fair labor practices, sustainability, and innovation come into play as key considerations beyond cost.

Ultimately, the TCO approach not only helps identify the most cost-effective option over time but also strengthens supplier negotiations by shifting the focus from price alone to overall value.

Conclusion

These five best practices for successful strategic sourcing are essential for companies navigating today’s unpredictable supply chain landscape.

By adopting them, your business can enhance supply chain resilience and generate long-term value.

Overall, strategic sourcing offers a more efficient, cost-effective, and proactive approach to procurement—turning sourcing into a powerful driver of competitive advantage.

Isn’t it time to evaluate your sourcing strategies and incorporate these best practices to strengthen your operations?