What Is Strategic Sourcing?
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Talk to our experts- Strategic sourcing
- Strategic sourcing is the structured, collaborative process of analyzing what an organization spends and using that analysis to make business decisions about acquiring goods and services. The US Office of Management and Budget defined it this way for federal agencies in 2005, and the process produces awarded contracts that employees are then told how to use.
How it works
Strategic sourcing is "the collaborative and structured process of critically analyzing an organization's spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently," as the US Office of Management and Budget (OMB) put it in its 2005 memo Implementing Strategic Sourcing.
The memo says the process helps agencies optimize performance, minimize price, evaluate total life cycle management costs, improve vendor access to business opportunities and otherwise increase the value of each dollar spent. The General Services Administration's Federal Strategic Sourcing Initiative (FSSI) page, last updated May 20, 2025, uses nearly the same definition, which includes the aims of reducing costs and improving overall performance.
OMB's memo lays the work out in order:
Strategic sourcing as OMB's 2005 memo lays it out
The strategic sourcing effort begins with a spend analysis.
Identify the commodities and services where strategic sourcing should be applied.
Set governance, annual goals and objectives, and performance measures.
Tell employees about the awarded strategic sourcing contracts and how they are to be used.
Track reductions in prices and in the cost of doing business, and improvements in performance.
Strategic sourcing vs. procurement
- Procurement runs individual purchases: the request, the purchase order, receipt and payment. On the buyer's side this is procure-to-pay.
- Strategic sourcing works one level up. It analyzes spending across all those purchases, then decides which suppliers and agreements they should go through. OMB's memo ties the two together: its plan includes steps to make employees aware of awarded strategic sourcing contracts and how they are to be used.
An RFQ is one way to gather supplier bids before those agreements are awarded.
Example
A distributor reviews 12 months of spending on corrugated cartons and finds $240,000 spread across 9 suppliers, with different prices for the same carton sizes.
- Analyze: the spend is grouped by carton size and supplier.
- Source: the team sends an RFQ to the 9 suppliers and awards annual agreements to 2 of them.
- Use: buyers are told to order cartons only from those 2 suppliers at the agreed prices.
- Measure: if the agreements take 6% off the average carton price, the same volume costs $240,000 x 0.06 = $14,400 less a year. The 6% is an illustration, not a benchmark.
On Shopify
Shopify's purchase orders let you record the commercial agreements that you make with your suppliers, and a supplier's details show the products you've ordered from that supplier on previous purchase orders. Shopify's guidance for managing multiple suppliers includes these strategies:
- Diversification: don't rely on a single supplier for critical products.
- Performance tracking: monitor supplier reliability, quality and delivery times.
- Cost comparison: regularly review pricing and terms across suppliers.
- Contract management: maintain clear agreements on terms, quality standards and delivery expectations.
How Uncap helps
Uncap's guide to running contract pricing cleanly on Shopify B2B says a contract price, tied to one account's specific negotiated terms and an expiration date, needs to trace back to the actual agreement, which usually means the ERP or CRM system where that contract was recorded. Uncap Connect keeps customer-specific pricing, credit terms, and account data synced between Shopify and your ERP.
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Frequently asked questions
What is meant by strategic sourcing?
Strategic sourcing means analyzing what an organization spends and using that analysis to decide how it buys goods and services. A 2005 memo from the US Office of Management and Budget (OMB) defines it as the collaborative and structured process of critically analyzing an organization's spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently.
What are the steps of strategic sourcing?
Step counts vary by source. The US Office of Management and Budget's 2005 memo on strategic sourcing starts with a spend analysis, then identifies the commodities to source, builds a plan with governance, goals and performance measures, makes employees aware of the awarded contracts, and reports on price reductions and performance.
What is the difference between procurement and sourcing?
Procurement covers individual purchases, from the request and purchase order through receipt and payment. Strategic sourcing analyzes spending across those purchases and decides which suppliers and contracts they should use, so procurement then buys through the agreements that sourcing put in place.
Why is strategic sourcing important?
The US Office of Management and Budget's 2005 memo on strategic sourcing says the process helps federal agencies optimize performance, minimize price, evaluate total life cycle management costs and increase the value of each dollar spent.
