Sourcing differs from traditional buying in five main ways.

Total Cost of Ownership (TCO), The price tag doesn't tell whole truth: From purchase to storage to repairs to disposal costs, there is more to a product or service than its sticker price. What becomes more important is the total cost of owning the product - from shopping cart to disposal. Factors that need to be taken into consideration is repair frequency, cost of replacement components, delivery capabilities and order lead time.

Consolidating Purchasing Power: Most of us see the obvious benefits of buying in bulk compared to buying individual items. However this logic is frequently overlooked in most companies due to purchasing complexity. Consolidating purchasing power goes beyond just pooling spend between entities, it also considers product standardization, supplier product portfolio and client analysis and hard core negotiations.

Tighter Supplier Relationships: By reducing the number of suppliers used in the business further cost reductions can be had by creating closer supplier partnerships and alliances by e.g. entering exclusive or multi-year contracts, product standardization and improvements in cost, quality and time.

Realigned Business Processes: Strategic sourcing redesigns work and information flow to eliminate redundancies and non-value-added work. For instance, one U.S. company used over 140 classifications of temporary help positions. After a strategic sourcing review that simplified job specifications, the number of temporary help positions was just 19. Strategic sourcing can also help reduce the frequency of purchasing orders and inventory costs.

Improved Teamwork And Purchasing Skills: Detailed information about products, markets and the buyers' and sellers' needs is essential to strategic sourcing. By creating cross-functional teams that can include suppliers, a business can overcome organizational barriers and inspire collaboration.

Adopting a Strategic Sourcing approach can in our experience save more on average 8-20% of the total cost mass and more than 50% on some purchase categories. For any company, that's not small change as cost savings have direct bottom-line profit impact.