How and When to Use Tactical Sourcing to Grow Your Business
The main procurement goal in most businesses is cost reduction. More businesses are transitioning to strategic procurement, giving them the edge. And while that’s a far more effective approach to procurement than focusing solely on reducing costs, it’s not your only option. With tactical sourcing, you can find better prices for services or products.
The key is knowing what tactical sourcing is, how to use it, and when it takes priority over strategic sourcing.
What Is Tactical Sourcing?
Tactical sourcing is a procurement strategy that relies on short-term goals focusing on purchasing products quickly for a good price.
Think of it as finding the best product at the best time for the best price.
Tactical sourcing differs from strategic sourcing in that it focuses on finding immediate solutions aligned to current procurement goals. Strategic sourcing is a lot more planned out. Its goal is to support overall business goals by aligning its procurement actions and strategies to those goals.
Additionally, smaller organizations use tactical sourcing more often. Specifically, manufacturing and production business or businesses that do not have a streamlined procurement process. This is mainly because it allows them to reduce costs while securing goods and services quickly. Still, it can be a vital strategy in any business.
There’s a time and a place for both. Knowing when to use tactical sourcing is key to helping you reduce your procurement costs even further.
Example of When to Use Tactical Sourcing
As the procurement officer for your company, you balance many tasks. You need to keep costs low, maintain vendor relationships, track payment data, avoid mistakes, and secure goods and services for your business.
You may have a procurement management playbook that you go by, and your business may or may not be in the process of following the trend of transforming your procurement processes into a strategic business function.
In the meantime, you’re always on the lookout for deals and opportunities that can reduce procurement costs and expand your bottom line.
You hear that a supplier is going out of business, has a surplus, or simply wants to move product and offers discounts on materials. You know that your business will use these materials, and buying them now means getting that discount. You’ve done the math and considered warehousing fees and storage risks. You reach out to the vendor and make the purchase.
In this case, you will have saved your business a significant amount on the goods or services due to the discount. And you’ll continue looking for opportunities like this in the future.
Alternatively, you may simply need a good or service that was unanticipated. As a result, you survey the market to find the best, more affordable products or services. In either scenario, it's a reactive (vs. a proactive) approach.
Tactical Sourcing vs. Strategic Sourcing
Tactical sourcing and strategic sourcing are both purchasing strategies that companies use in their procurement efforts. They are quite different in their approaches, and the one you choose to employ depends on the situation. Knowing the difference between both will help you figure out when to use them.
Tactical sourcing is a short-term purchasing strategy. With tactical sourcing, you base purchasing decisions on very few factors. Specifically, you focus on price and delivery dates.
Rather than considering the benefits of the purchase to the organization, you focus on making a purchase that works for the moment of need.
Because you focus more on need, Tactical sourcing tends to be more reactive than proactive. That’s why smaller organizations tend to rely on it more. They usually don’t have the resources or supplier choices to map out a complex procurement network as larger organizations do. And they face more challenges.
For example, let’s say that your company is low on a particular product and you need to replenish it by the end of the week. You don’t have time to do the usual research on vendors, so you simply find the vendor with the best price and who can deliver the product by the end of the week.
This will cut down on your buying choices. But considering the time constraints, you can’t be choosy. You need to act. So, you make the tactical sourcing choice and come out on top.
Strategic sourcing is a long-term purchasing strategy. Strategic sourcing bases its purchasing decisions on the total cost of ownership. This considers the entire amount of money the company will spend on the product, not just the price. It also considers the benefits of the purchase to the organization.
Strategic sourcing tends to be more proactive than reactive. You have more control over the process rather than the process controlling you. Larger organizations use this approach more frequently because they have numerous resources and a wide choice of suppliers to rely on.
For example, if your company is low on a particular product in this instance, you analyze your vendor data and see if there’s a cheaper option available. If not, you can leverage the weight of your business and existing relationships to negotiate lower prices.
You wouldn’t rush to the cheapest vendor. Instead, you’d need to make sure your purchasing decisions align with your business's overall procurement goals and established practices.
This is easier for larger businesses because they have access to enterprise procurement systems, real-time supply chain data, and a team ready to analyze and find the best solution. They can move quicker and with better insights. And with the weight of the purchasing power of their business behind them, they can have more leverage in supplier negotiations.
Pros and Cons of Tactical Sourcing
While tactical sourcing can be an effective sourcing strategy, there are pros and cons to using this strategy.
- It takes care of immediate needs: You have to act fast when there is a sudden need for something. Tactical sourcing is best when you need immediate results.
- There is very little decision-making: The most important decisions are the product price and the delivery time.
- It doesn't require large amounts of resources: Tactical sourcing works well for smaller companies that may not have the resources to devote to extensive planning and research.
- It doesn't require large amounts of planning: You’re not going to do market research when using tactical planning. Just get a good price and get it delivered quickly.
- No time for market research: You have to curtail all the research you may normally do. The missing information and data can easily lead to higher costs.
- Not focused on building a relationship with the vendor: The goal is to get the product at the best cost and quickly as possible. This does not afford time for you to negotiate with the vendor to build a long-term relationship.
- No time to negotiate for better terms: The time crunch causes you to miss out on possible negotiations that could result in a better long-term deal.
- It might not result in the best price: You don’t have time to consider many different vendors and may have to choose from only a few. And if they know you are in a rush, they may upcharge you.
Short Term Gains vs. Long-Term Wins
If used wisely, tactical sourcing is a practical and sometimes necessary procurement strategy. It can help you reduce costs and keep operations going. But, it’s not your only option.
If tactical sourcing is winning the battle and strategic sourcing is winning the war, the two go hand in hand. You can’t win the war without first winning the battles.
That’s why you shouldn’t overlook tactical sourcing. There’s room for tactical and strategic sourcing in a company’s procurement plan. Understanding when to use both simply gives your business a bigger edge.
Still, utilizing strategic procurement requires better systems. Without streamlined procurement solutions, you won’t have access to the real-time data you need to build a strategic plan for purchasing and sourcing in your organization.
Unfortunately, many turnkey procurement solutions are priced out of reach for small, growing businesses. And custom solutions are even more expensive. Luckily, you have options. Leveraging the benefits of low-code, you can build custom procurement automations that streamline processes and give you the necessary data to build a strategic procurement process.
We know because we’ve helped growing businesses make that happen.
See how we've helped our clients improve their businesses and get insane ROIs by checking out our case studies below.