Tactical Sourcing vs. Strategic Sourcing in Procurement: What’s the Difference?

Stakeholders need to move quickly to keep up with business demands. But how fast is too fast? When it comes to procurement, tactical sourcing offers speed—but it may leave more on the table than you realize.

Today we examine the tactical approach to sourcing and explore whether the speed advantages of this transactional approach outweigh the long-term benefits of strategic sourcing.

• What tactical sourcing is
• How tactical sourcing differs from strategic sourcing
• The pros and cons of tactical sourcing practices
• The benefits of adopting a strategic sourcing approach
• How technology helps businesses (even small businesses) source goods strategically

Download the free ebook: The Procurement Strategy Playbook for Modern Businesses

What is tactical sourcing?

Tactical sourcing is the practice of purchasing supplies or services quickly, with a minimal process focused on speed rather than on guidance from an organizational sourcing strategy or process. 

In many organizations, tactical sourcing is the standard, relying on short-term fulfillment for most orders. While tactical sourcing has its place within an organization and is sometimes appropriate, exclusively leaning on transactional activity leaves money and leverage on the table when more strategic opportunities exist. 

Differences between tactical vs. strategic sourcing

In tactical sourcing, purchasing decisions are based on the immediate need of the stakeholder or team. These individuals drive the procurement process by researching a supplier and arranging for a purchase order and delivery. 

This type of sourcing occurs more frequently in startups or small organizations, as they don’t have a procurement team charged with conducting the necessary market research and spending analysis that lead to an established order process.

Strategic sourcing, on the other hand, takes the broader needs of the organization into account. It has a more detailed research and review process, usually involving an RFP and competitive analysis of several potential vendors. Strategic sourcing considers the development of strong supplier relationships and long-term contracts with volume pricing to achieve better results. It also typically involves departmental due diligence and approvals for Finance, Legal, and Security needs. 

Instead of merely getting goods delivered quickly, strategic sourcing takes the time to meet both stakeholder and organizational needs more thoroughly and effectively.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download the ebook

Pros and cons of tactical sourcing

Tactical sourcing can be a valuable tool for certain situations. However, using it as the sole procurement method leaves much to be desired for the company's long-term financial health. Often, too much tactical spend emerges out of a reactive approach to supply chain demands, so being aware of the larger implications of spot buys and transactional buying is crucial to long-term success. 

Here are a few factors to consider when deciding on an approach for making a new purchase. They may also be helpful for determining procurement policies.

Pros of tactical sourcing:

• Fast: Transactional purchasing has a shorter due diligence timeline than strategic sourcing. Buyers find a supplier who offers the goods they need, research the product and pricing, arrive at an arrangement that works for both parties, and submit a purchase order. These purchases may not go through a Legal or Security review, which reduces closing time.

• Targeted: The buyer gets the specific product they want from their selected vendor. This form of purchasing may or may not include research on similar solutions. Often, stakeholders conduct research themselves and submit the chosen solution to a manager for sign-off. 

• Agile: Transactional buying has fewer constraints than a strategic approach. Therefore it may be seen as more flexible than sourced procurement. While transactional buying offers no vendor guarantees about availability, many stakeholders simply move on to other known or new vendors if the original vendor can’t meet demand.

Cons of tactical sourcing:

• Higher cost: The transactional nature of tactical sourcing leaves out opportunities to negotiate for the best price. Because purchasing is a single event versus a long-term negotiated relationship, stakeholders often pay the list price for supplies, even when use patterns offer opportunities to negotiate on volume.

• Less stable: Transactional buying opens the possibility that goods will not be available when you need them. This forces stakeholders to look elsewhere to get supply needs met. While this may not be an issue depending on the type of supplies you’re purchasing, tactical sourcing for mission-critical or difficult-to-source supplies may introduce friction into your supply chain.

• Increased risks: The tactical sourcing approach often means stakeholders engage with unknown senders. The speed preference in tactical sourcing also means legal and security review and may take a backseat to transactional speed. These conditions make third-party risk more likely. Working with known and established vendors reduces this risk.

Questions to ask before conducting a tactical purchase

Understanding the urgency and motivation behind a transactional purchase can help stakeholders decide if a self-service, tactical procurement approach is best for a given scenario. 

• What is the urgency of this purchase?
• Are there policies in place for tail spend or a spot-sourcing process?
• Is Procurement/Finance aware of the purchase? Has the spending been approved? 
• Is this a direct (project-related) or indirect (overhead) spending request?
• Is there a larger total cost of ownership to consider in this purchase?
• How specialized is the needed supply or service? 
• Why is the purchase coming up now? Is there a mitigating circumstance, such as a supplier shortfall with your regular supplier?
• What are the normal lead times for these supplies?
• How confident are you in contract negotiation for these items?

Taking time to contextualize the purchase in this way avoids taking a tactical approach when a more thorough, long-term strategy may yield better overall results.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download

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5 Reasons to choose strategic sourcing over tactical sourcing

There are instances where tactical sourcing is a useful tool. It may help stakeholders respond to an unanticipated need or supply chain issue. However, on the whole, the strategic approach to sourcing offers organizations more benefits that make the longer timeframe worth the effort.

1. Strong supplier relationships

Building mutually beneficial relationships with vendors offers many advantages over a transactional approach. Committing to a supplier with a one-year or multi-year contract guarantees a certain level of service for buyers and an expected level of revenue for the vendor. Quality vendors who contract with an organization often go above and beyond to maintain the account by ensuring high-quality products and services.

2. More buying leverage

The strategic sourcing approach requires stakeholders to give up a bit of agility. In return for consolidating purchases with a single vendor, stakeholders take advantage of better-negotiated pricing based on contract length, purchasing volume, logo recognition, and other factors. Strategic sourcing, therefore, offers better cash performance than transactional procurement approaches.

3. Streamlined process

The transactional approach to buying requires you to start over for every purchase. With a strategic sourcing approach, stakeholders find many opportunities to streamline the purchasing process. This may look like a more in-depth Legal and Security review that only has to occur once or an integrated payment process to automate accounts payable activities. 

4. Lower third-party risk 

Strategic sourcing creates strong relationships with known vendors. This reduces procurement risks such as item quality issues, delivery delays, security concerns, or procurement fraud. Strategic procurement offers organizations the chance to conduct supply chain management that secures the supply base and enables supplier performance analysis. 

5. Inventory guarantees

Building a strategic supplier relationship management approach avoids some pitfalls of supply procurement. It reduces lead times for critical supplies and ensures the items you need are there when you need them. Contracting with a preferred supplier for procurement gives your vendors visibility into demand, allowing them to balance inventory with anticipated needs and ensure quick availability. 

How Order.co enables strategic sourcing

Even if your organization doesn’t currently have a procurement department or a supply chain management process, procurement software creates opportunities for more strategic partnerships and purchasing automation.

Procurement software like Order.co allows stakeholders flexibility in sourcing and purchasing supplies while providing better visibility and pre-negotiated pricing from a list of approved vendors. Using Order.co, organizations begin their journey to better procurement without starting from scratch. Order.co offers: 

• Centralized buying features that allow stakeholders across the organization to get the supplies they need from a preferred list of vendors
• Purchase automation and workflows that enable fast approval and processing for requisitions
• Back office capabilities to take the burden off accounts payable and automate many activities in the purchase-to-pay process 
• Real-time spend data to help contextualize tail spent and optimize cash efficiency

These features are delivered within a central platform that benefits organizations of every size and stage.
If your organization is ready to leave behind the drawbacks of tactical sourcing and reap the benefits of the strategic sourcing approach, schedule a demo of the Order.co platform to learn more.