How to Build a Strategic Sourcing Strategy in 7 Steps

Choosing the right suppliers isn’t just about getting a good price, it’s about building the foundation of a resilient, sustainable supply chain that can support your business goals over time.

For a Chief Procurement Officer CPO, defining a sourcing strategy is no longer just an operational issue, but a strategic lever to balance costs and risks, anticipate crises, enhance innovation and generate competitive advantage. But how do you build the right mix of suppliers? How many and which ones should you involve? How do you evaluate their real impact on the business?

This article guides you through developing a strategic sourcing strategy based on proven methodology, data and technology. It’s a concrete approach to:

• Reduce the total cost of ownership
• Improve supplier visibility
• Align sourcing choices with business goals

Explore how AI can accelerate sourcing activities, what the fundamental steps to select and segment suppliers are and why an integrated platform like Esker Source-to-Pay is essential to overcome fragmentation, increase control and enhance the strategic role of procurement.

What is strategic sourcing & how does it differ from traditional procurement?

Sourcing and procurement are often used synonymously. But, in practice, they represent two radically different approaches.

Strategic sourcing is a structured and cyclical process that aims to optimize the overall value of purchases over time. It’s not limited to selecting the cheapest supplier but aims to build a supplier base aligned with company objectives regarding resilience, quality, innovation, sustainability and efficiency.

The focus is not on price, but on total cost of ownership (TCO), which is the total cost associated with purchasing a product or service throughout its life cycle.

Unlike traditional procurement, which manages the transactional part of the supply process (orders, deliveries, supplier management), strategic sourcing works upstream to:

• Analyze spending by category
• Evaluate potential suppliers on multiple criteria (not just economic)
• Define policies, framework contracts, medium- and long-term strategies

According to BCG, an effective approach to strategic sourcing can help companies generate savings of 10% to 20% while improving supplier relationships and the ability to adapt to dynamic environments.

Why developing a sourcing strategy is a priority for companies today

The context in which the procurement function operates has changed dramatically in recent years. Market volatility, supply chain disruptions, inflation, skills shortages and pressure on sustainability and compliance are just some of the variables that are redefining the priorities of CPOs.

It’s no surprise that, according to Amazon Business’s 2024 State of Procurement Report, 95% of decision makers believe their procurement process has significant room for optimization, while 98% plan to invest in analytics, automation and AI tools in the coming years. Complexity is the new standard.

Effective sourcing helps reduce costs, but above all:

• Mitigates operational risk by distributing dependency across multiple vendors
• Ensures visibility and control throughout the supply chain
• Creates the conditions for sustainable growth in the long term
• Improves the quality of selected goods and services
• Makes procurement more resilient, faster and more interconnected

According to BCG, a data-driven approach to sourcing and the use of AI can enable companies to achieve savings of up to 15% in key spend categories, while freeing up 30% of buyers’ time to be reallocated to high-value activities.

The growing role of sustainability should not be forgotten: 85% of companies struggle to find suppliers that comply with ESG standards, yet 59% have already received internal or external mandates to purchase from certified vendors. A smart sourcing strategy therefore also becomes a priority for compliance and corporate ESG strategy.

Building an effective strategic sourcing strategy

A sourcing strategy doesn’t start from a blank sheet of paper, nor from a static list of approved suppliers. It’s the result of a structured, iterative and data-driven process. Each phase requires strategic vision, analytical rigor and constant alignment with business priorities.

7 steps to develop a solid and sustainable strategic sourcing strategy

1. Analyze business needs and expected value

It all starts with understanding the real needs of the organization, including which goods and services are needed, how often, for which functions and with what impact on the business. It’s not just about looking at past spending — it’s about anticipating future needs in a way that adds value.

2. Segment categories and map potential suppliers

Not all categories deserve the same level of attention. It’s essential to apply a segmentation model — such as the Kraljic matrix — to classify each supply category based on risk and economic impact. This allows you to focus your efforts on those with high strategic value and adopt more agile approaches on non-critical categories.

You’ll also want to actively map potential suppliers, even those outside your current base. Explore your market by participating in tradeshows and conducting competitive analysis and digital scouting. At this stage, it’s also useful to involve internal stakeholders to evaluate how various suppliers meet your company’s technical, geographic, regulatory and ESG requirements. The higher the quality of intelligence data you collect, the better your strategy will be.

3. Assess total cost of ownership and risk

The lowest price is often misleading. You need to look at the TCO, including any hidden costs, logistics efficiency, supply continuity, risk of dependency and contractual reliability. AI can help identify areas of real savings, avoiding short-sighted choices.

4. Define selection criteria and select tender tools

Translating strategy into action requires a precise definition of your evaluation criteria. In addition to price, be sure to also consider quality, delivery times, financial strength, innovation capacity, service level and ESG. These criteria must be weighed and integrated into transparent and shared scorecards to avoid opaque or non-replicable decisions.

Depending on the category, you can use different sourcing tools, such as:

• Detailed RFPs for complex supplies
• RFQs for standardized purchases
• eAuctions for highly competitive categories

The digitization of these processes via dedicated sourcing platforms allows you to not only accelerate sourcing cycles but also document each decision, improve compliance and strengthen control.

5. Construct a supplier mix

This is the heart of your strategic sourcing strategy — balancing the supplier portfolio to avoid risky concentrations and create operational flexibility.

Types of suppliers you may encounter include:

• Strategic suppliers are long-term partners, often involved in co-development activities or in business-critical categories. They should be managed with solid agreements, shared processes and relational governance.
• Tactical suppliers support recurring operational needs, often at high volumes and low margins. This is where continuity of service and efficiency count.
• Emerging or innovative suppliers, perhaps smaller or more specialized, should be included in the mix, which allows you to test new technologies, cover niches or access localized markets.

This diversification is essential to managing geopolitical risks, price volatility and ESG transitions, as well as to improve your overall negotiating position.

6. Manage relationship Development and Performance

Sourcing doesn’t end with the signing of the contract. Clear governance is needed, including KPI monitoring, periodic assessments, structured feedback and co-innovation. Companies can help reduce risks by involving suppliers in a shared growth path, especially on ESG issues.

7. Continuously align with business objectives and change

Static strategies do NOT stand the test of time. Sourcing must evolve with your business as new priorities, new markets and new risks arise. A dynamic approach is needed, supported by real-time data, predictive analytics tools and rapid response capabilities.

How to choose the right supplier mix: balancing risk, cost and agility

Finding the right balance in the supplier portfolio is an operational necessity in times of instability and hypercompetition. An effective sourcing strategy is measured by its ability to adapt to changing scenarios without sacrificing efficiency or control.

For companies, building a solid supplier mix means managing risk without giving up the cost lever. And vice versa.

The temptation to rely on a limited number of “historical” suppliers is strong. They are often well-known, responsive and reliable, but this very set of characteristics can create fragility in your overall supply chain. Depending on only a few partners exposes your company to interruptions, unilateral price increases or unpredictable delays. If a supplier were to request increases of 40-50% compared to the expected budget, having real backup options becomes vital for your business.

On the other hand, indiscriminately multiplying the number of suppliers you use creates administrative complexity, reduces negotiating power and makes it difficult to ensure consistency and compliance. The point is not “more” or “less” but using the right suppliers for the right purpose.

Companies can adopt some levers to optimize their supplier mix:

• Regularly assess the risk associated with each supplier, including dependency, financial stability, compliance and ESG.
• Integrate new suppliers in a gradual and controlled manner, with digital onboarding, performance metrics and pilots.
• Maintain a share of local or alternative suppliers to improve responsiveness, reduce carbon footprint and respond to regulatory constraints.
• Segment by role (strategic, operational, specialist, innovator), each with a dedicated governance framework and set of KPIs.

Furthermore, the lowest price does not equal the best value over time. Hidden costs (delays, complaints, quality issues) can quickly eat away at any apparent margin. This is where TCO comes in, an essential perspective for making informed decisions.

Finally, supplier management should not be underestimated. Strategic partners must be cultivated, not just controlled. Sharing objectives, data transparency, collaboration on ESG issues and innovation — all this strengthens the quality and continuity of supply in the long term.

A mature sourcing strategy is one based not just on spend, but on a combination of value, risk and resilience. And that requires the right tools.

AI can help: how technology accelerates sourcing activities

Strategic sourcing is no longer just about human expertise. AI, automation and predictive analytics are redefining the timing, methods and outcomes of sourcing activities.

According to BCG, companies that use AI in supplier management achieve:

• Up to 15% savings on key cost categories
• 50% reduction in tender preparation times
• Better forecasting accuracy of supply and performance risks

Amazon Business data also confirms the trend: 80% of procurement leaders intend to integrate AI into their processes within two years.

AI can help:

• Identify potential compatible suppliers in real time
• Suggest more advantageous alternatives based on total cost
• Improve the quality of sourcing decisions with dynamic insights

From sourcing to procurement: the Esker integrated approach

To truly be effective, a sourcing strategy cannot exist in isolation. It must be part of an end-to-end, fluid, traceable, integrated process. This is exactly Esker's approach.

Through the Esker Source-to-Pay platform, CPOs can orchestrate every stage of the process, from supplier selection to contract management, from ordering to performance evaluation, with a unified, data-driven view.

The platform includes:

• Esker Sourcing — Digitize and accelerate strategic sourcing activities, including RFP/RFQ management, electronic auctions, automated offer comparison and scoring. Ideal for structuring transparent, documented and replicable processes.
• Esker Supplier Management — Centralize supplier onboarding, automate document collection and enable ongoing assessment based on KPIs, risk and ESG criteria. A powerful tool for improving supplier relationships and compliance.
• Esker Contract Management — Create, approve, archive and monitor contracts in a structured way. All documents are accessible from a single repository, with alerts and controls to manage deadlines, clauses and revisions.
• Esker Procurement — Supports indirect purchasing in a controlled self-service mode with integrated catalogs, approvals, budgets and policies. Optimizes the purchasing process and ensures compliance, helping to reduce total costs.

With a single platform, Esker enables you to:

• Eliminate silos between sourcing and operational procurement
• Improve visibility throughout the procurement process
• Reduce errors, time and manual activities
• Enhance the role of the CPO as a leader of change

Curious to learn more? Watch a demo of the Esker Source-to-Pay suite here.

In a world where strategy, agility and sustainability are imperative, only truly integrated sourcing can make the difference. With Esker, companies can move from being reactive to predictive and collaborative management, enabled by AI but guided by strategy.

Procurement is no longer just a lever of efficiency. It’s a strategic asset. And those who govern the supplier mix with vision, strategy and technology already have a competitive advantage over those who simply chase the lowest price.