Understanding Tactical Sourcing

As technology transforms procurement, organizations are better able to use data to unearth and resolve inefficiencies in their sourcing process. Many organizations are spending this year focusing on tail spend: unmanaged or off-book purchasing that can quickly drag down a company’s bottom line. 

While tail spend must be a priority for many procurement teams, tactical sourcing should be the next candidate for re-evaluation. Tactical sourcing does serve an important purpose for many businesses, yet too much tactical sourcing can prevent cost savings and create waste. Here’s how to understand tactical sourcing and its specific role in procurement. 

What is tactical sourcing?

Tactical sourcing is an approach to sourcing that emphasizes fast requisition, quote, and order processes. Tactical sourcing is short-term and transactional with the goal of pursuing shorter lead times, high-quality goods or services, and low prices. 

A good way to understand tactical sourcing is to compare it to strategic sourcing. Strategic sourcing is the process of planning ahead to ensure that the goods and services needed to do business successfully are obtained on time as needed — and on budget. Strategic procurement involves carefully optimizing everything from vendor selection, payment terms, vetting, contract negotiation, and the purchase of goods and services. 

Tactical sourcing, on the other hand, doesn’t account for the requirements of the entire organization. Rather than seeking to optimize all processes or gain a deeper understanding of how a vendor can support a company’s mission (e.g., supplier relationship management), tactical sourcing is about finding the right material at the right price at the right time. 

Organizations should use a combination of tactical and strategic sourcing to accomplish their procurement needs. 

Pros and cons of tactical sourcing

There’s a time and a place for tactical sourcing. Tactical sourcing is the right approach if your enterprise is experiencing a time constraint or an overlap in procurement and production schedules. Tactical sourcing can also be a way to start addressing rogue spend: rather than allowing employees to make off-book purchases, introduce a tactical sourcing process that helps complete procurement faster. 

SAP Ariba also identified the following three benefits in their intro to tactical sourcing: 

1. Organizations can provide an intuitive self-service collaboration tool to their employees. 
2. Self-service can thereby increase compliance with procurement policies. 
3. Ultimately, tactical procurement helps increase savings. 
   

Tactical sourcing does have some drawbacks, however. Often, tactical sourcing bypasses the important step of conducting market research to find the best possible vendor for a particular product or service. Relationship management is also minimal; this is a reactive process that is not conducive to building mutually beneficial relationships. Procurement teams that rely on tactical sourcing may miss out on the chance to negotiate better contracts, build partnerships, and improve on key strategic processes. 

This is where the benefits of strategic sourcing start to outweigh the speed of tactical sourcing. Strategic sourcing finds efficiencies across spend categories, minimizing supply risks, improving vendor selection, and bringing greater visibility to pricing and forecasting. 

Create a hybrid sourcing strategy

For smaller organizations, tactical sourcing might make sense. But for the most part, tactical sourcing is an interim strategy that can be used to reduce unmanaged spend while building a long-term strategic sourcing approach. 

To create a procurement process that captures the advantages of both strategic and tactical sourcing, focus your strategic process on a key number of products or services — particularly those that are high-value and central to business operations. Look for inputs with a high total cost of ownership (TCO). 

To estimate the total cost of ownership, consider: 

• The sticker price of the product or service
• The cost to transport the product from the supplier
• The cost to store the product
• The cost of training the employees to use the product, if applicable
• The total number of uses of the product (or product lifespan)
• The cost of caring or maintaining the product 
  

Inputs with a high TCO are those best suited to strategic sourcing. Consider also how integral a product or service is to running your business. These types of inputs are those which you will need now and in the future, and it makes sense to build long-term relationships with suppliers. Save your tactical sourcing for things you need on a short-term, infrequent basis. 

Adding technology to the process to streamline strategic sourcing can lead to over 50% more visibility into spend, nearly 50% faster execution, and nearly 40% better policy compliance. Technology can also bring together a list of pre-vetted and approved vendors to bring better visibility into your tactical sourcing process.

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For more resources on tactical and strategic sourcing, check out Fairmarkit’s blog, The Source.