History of Strategic Sourcing

The concept of strategic sourcing isn’t exactly new. It emerged sometime in the late 1980s or early 1990s. Initially adopted by large companies, it aimed to quantify and increase vendor return on investment (ROI). Over time, this practice has become widespread among organizations of all sizes1.

Strategic sourcing goes beyond traditional procurement. It involves a big-picture approach, focusing on optimizing the entire procurement process. Rather than simply buying goods and services, strategic sourcing aims to create value by considering factors such as supplier relationships, risk management, and long-term impact. By strategically evaluating suppliers, negotiating contracts, and managing the end-to-end process, companies can achieve cost savings, improve quality, and enhance overall performance.

In summary, strategic sourcing has evolved from a peripheral function to a core strategy for organizations. It’s about more than just cost reduction; it’s about maximizing value across the entire supply chain.

IMPORTANT MILESTONES IN THE HISTORY OF STRATEGIC SOURCING

1950-1960: Post-World War II and the Rise of the Middle Class

After World War II, the formation of the middle class in wealthy countries brought about reasonable financial stability. Despite the world being divided into socialist and capitalist blocs, large companies were focused on meeting the high demand for products from an increasingly discerning public. During this period, many of the marketing and planning tools we know today were developed. The primary objective was to sell and supply products without significant concern for costs or innovation, as profit margins were guaranteed by strong demand and relatively low international competition1.

1970-1980: Oil Crises and Japanese Dominance

The oil crises of 1973 and 1979 significantly increased production costs for companies. This had a global impact, especially in the North American automotive sector. Japanese companies emerged as dominant players in the market for economical, affordable, and reliable cars. These Japanese firms excelled in supply chain management, emphasizing productivity through close relationships with suppliers. Western companies began adopting the process-oriented, organizational, and methodological aspects of their Japanese counterparts. During this period, the role of procurement shifted from administrative to strategic, becoming a key player in overall business strategy2.

1990s: Globalization and Productivity Focus

Historical events such as the fall of the Berlin Wall, privatization, and increased trade openness facilitated legal and logistical processes between countries—what we now recognize as globalization. The 1990s also witnessed significant changes in manufacturing approaches. Reengineering, aimed at streamlining existing work methods, became popular. Additionally, new global sourcing opportunities emerged, encouraging companies to pay greater attention to their supply chains and suppliers. As competition intensified, companies realized that survival required not only productivity but also clear long-term business strategies focused on differentiation and value creation. The accessibility of personal computers and real-time information technology further transformed business practices3.

2000s and Beyond: Structural Shifts and Risk Management

In the 2000s, several structural factors directly impacted organizations. These included a crisis of confidence in corporate governance, global economic downturns, and the rise of BRIC countries (Brazil, Russia, India, and China). High-profile corporate bankruptcies fueled skepticism about management practices. Consequently, companies began adopting increasingly stringent standards to minimize risks associated with populations, corporations, and investors. The Sarbanes-Oxley Act (SOX) was introduced to enhance control and risk management4.

These historical milestones collectively shaped the trajectory of procurement management, emphasizing strategic thinking, risk mitigation, and value creation.