With economic signals pointing to perhaps another year of lean times, companies are trying to pinpoint where they can best save money. Sourcing is a mission-critical function that affects numerous areas of potential savings, so it is understandably getting increased scrutiny from CEOs, CFOs and others concerned with the bottom line. They're asking a lot of hard questions, such as:

• Where and with whom are we spending our money?
• Are we getting the best value for that money?
• How can we reduce sourcing cycle times?
• How do we optimize supplier relationships for the long term?
• What opportunities exist to significantly reduce our costs?
• Is sourcing best addressed through a supply chain management system, an enterprise resource planning (ERP) system, a product life cycle management system--or something altogether different?

The answer to each of these questions will depend on an organization's industry, history and unique purchasing situation. There is no single technological panacea for strategic sourcing. That's because, first, the ideal sourcing equation is different for every company and, second, the sourcing process is too complex, panoramic and fluid to be fully addressed by any one solution.

Sourcing and e-Sourcing

Before companies can intelligently identify the best ways to improve their sourcing process, management needs to appreciate what sourcing and e-sourcing mean.

Sourcing can be defined as a disciplined process designed to increase the effectiveness of purchasing professionals in delivering the best value. Sourcing entails a number of steps. First, a spending analysis is conducted to show how much the company is spending by category and which suppliers are getting the business.

Then, for each key spending pool, the company defines a disciplined sourcing process. This process will vary from company to company, but it focuses on identifying and understanding the key factors that affect cost, quality and performance. During the process, the company typically prepares:

• An industry analysis of "drivers" influencing the product category
• A market analysis of factors affecting the category in the buyer's region or country
• An analysis of the capabilities and financial stability of each supplier being considered
• A benchmarking analysis to assess the pricing, quality and performance of each supplier