What are the 7 steps of the strategic sourcing process?
Short answer
The strategic sourcing process has seven steps: profile the category and its spend, research the market, set the strategy, go to market, evaluate and negotiate, award, then implement and measure.
Key takeaways
- The seven steps are: profile the category and its spend, research the supply market, write the sourcing strategy, go to market, evaluate and negotiate, award the contract, then implement and measure.
- Each step ends with a document or a decision that the next step uses: a spend baseline, a market report, an approved strategy, a request document, an evaluation report, a signed contract, a savings report.
- In practice the process often runs in two layers. A selection tender references a few suppliers, often on a framework agreement for several years; each specific need then goes to them as a request for quotation or a mini-competition.
- Set the baseline and the evaluation criteria before suppliers see the request. Changing either afterwards weakens the result and, for public buyers, can break the law.
- The process does not end at signature. Savings exist only when people buy through the new contract, so step 7 tracks use, prices and supplier performance, and feeds the next cycle.
What are the steps of the strategic sourcing process?
The strategic sourcing process takes one category of spend, such as cleaning, laptops or freight, from data to a working contract in seven steps. Each step answers one question and produces one document or decision. Methods use six to eight steps with different names, but the order is the same.
- Profile the category and its spend. What do we buy, from whom, at what price, and what does the business need?
- Research the supply market. Who can supply it, how strong are they, and how are prices built?
- Write the sourcing strategy. How many suppliers, for how long, in which lots, and through which route to market?
- Go to market. Send the request for information, quotation or proposal, or run a reverse auction.
- Evaluate and negotiate. Score the offers against criteria set in advance, then negotiate where the rules allow it.
- Award the contract. Choose the supplier or suppliers, sign, and tell the others.
- Implement and measure. Move orders onto the new contract, track savings and performance, and plan the next cycle.
What strategic sourcing is, and how it differs from sourcing for a single need, is explained in the strategic sourcing guide. This page follows the process step by step.
What goes in and comes out of each step?
A sourcing project stays on track when each step has a clear output that someone approves before the next step starts. The table lists them.
| Step | Main inputs | Output | Usually approved by |
|---|---|---|---|
| 1. Profile the category | Spend data, contracts in place, needs from users | Category profile with a cost baseline | Category manager and finance |
| 2. Research the market | Supplier lists, requests for information, price indices, industry reports | Market report and a list of qualified suppliers | Category manager |
| 3. Write the strategy | Category profile, market report, business goals | Sourcing strategy: lots, number of suppliers, term, route to market, criteria | Sourcing committee or budget holder |
| 4. Go to market | Strategy, specification, contract terms | Request for quotation or proposal, or auction rules, sent to suppliers | Category manager, legal for the terms |
| 5. Evaluate and negotiate | Supplier responses, evaluation model | Evaluation report and negotiated offers | Evaluation panel |
| 6. Award | Evaluation report, budget | Award decision, signed contract or framework agreement | Budget holder, under the delegation of authority |
| 7. Implement and measure | Contract, supplier data, order data | Contract live in ordering systems, savings and compliance report | Category manager and finance |
If a step has no approved output, the next step rests on an assumption: a strategy without a baseline, or an award without an evaluation report, is hard to defend later.
How do you prepare a sourcing project (steps 1 to 3)?
Preparation takes more time than most teams plan for, and it decides most of the result. The US Office of Management and Budget wrote in 2005 that an agency’s strategic sourcing effort “begins with a spend analysis”, and that is still the right start.
- Step 1, the category profile. Use spend analysis to see the last 12 to 24 months of purchases: suppliers, volumes, prices, sites. Fix the baseline now, for example the average price paid per unit last year, and agree it with finance. Ask users what they need, not only what they buy today. A hospital may buy cleaning by the hour when what it needs is clean wards by 7 a.m.
- Step 2, the market. Find out who can supply, how many suppliers are active, what drives their costs and how much capacity they have. A request for information, supplier days and published price indices help. This is also the moment to register and qualify new suppliers, so that the tender reaches companies already checked as fit to work with.
- Step 3, the strategy. Decide the number of suppliers, the lots (for example by region), the contract term, the price model and the route to market. The category management guide shows how the portfolio matrix of profit impact and supply risk guides this choice. Write the evaluation criteria and their weights now, before any supplier sees the request.
For complex services, some public buyers go further. The UK Sourcing Playbook asks central government projects to assess the health and capability of the market early, and requires a should cost model, an estimate of what the service ought to cost, for complex outsourcing projects. Private buyers can use both ideas without the formality.
How do you choose the route to market (step 4)?
The route to market depends on how clear the need is and how many suppliers can meet it. The table gives the usual choices.
| Route | When it fits | Guide |
|---|---|---|
| Request for information (RFI) | The market is unclear; you need to learn before you specify | RFI vs RFP vs RFQ |
| Request for quotation (RFQ) | The specification is fixed and price decides | What is an RFQ? |
| Request for proposal (RFP) | Suppliers propose a solution; quality, service and price are scored together | The RFP process |
| Reverse auction | Standard items, several qualified suppliers, price is the main criterion | Reverse auction |
| Direct negotiation | Only one or two suppliers can meet the need, and the rules allow it | Document why competition was not possible |
Choose the route in the strategy, not at the last minute: the route decides the documents, the time needed and how offers can be compared.
Most buyers now run these events in e-sourcing software, which sends the request, collects answers in the same format, opens them at a set time and keeps a record of every step. Whatever the route, the request states the requirement, the contract terms, what suppliers must provide and how offers will be evaluated. US federal rules (FAR 15.203) make these four elements a minimum for a request for proposal.
How are offers evaluated and the contract awarded (steps 5 and 6)?
Offers are scored against the criteria and weights fixed in step 3. Price is compared on total cost over the contract, not only unit price: delivery, installation, training, running costs and the cost of changing supplier. Quality, service and risk are scored by a panel that includes the people who will use the contract.
Negotiation rules depend on who buys. A private company can negotiate with the best two or three suppliers. In the EU public sector, the open and restricted procedures do not allow negotiation once tenders are in; negotiation is possible only in procedures such as the competitive procedure with negotiation, and only on the grounds the directive lists. Check the rules before telling suppliers there will be a negotiation round.
The award produces one of two results. Either a contract for a defined scope, or a framework agreement (also called a panel or an approved list) that fixes prices and terms with one or several suppliers for several years without ordering anything yet. Unsuccessful suppliers are usually told why they lost. In the EU and the UK, public buyers must also wait for a standstill period after the award decision before signing, with some exceptions; in the UK, for example, contracts awarded under a framework.
How do frameworks and call-offs fit into the process?
In many organisations, the seven steps run once to reference suppliers, and specific needs then go to those suppliers many times over the following years. The first layer is the selection tender. The second layer is the call-off: an order placed under the framework.
For example, an organisation runs one tender and references three IT service firms on a four-year framework. Each new project then goes to those three firms as a request for quotation, often called a mini-competition, with a short deadline. Nobody runs a new full tender for each project, and only referenced suppliers take part.
- Direct award (call-off without competition). The framework sets the price and the rule for choosing the supplier, for example by region or by ranking, and the buyer orders directly.
- Mini-competition. The framework suppliers quote again for a specific need, against criteria the framework allows.
- EU public sector. A framework normally lasts at most four years, and call-offs are only between the buyers and suppliers named in it, without substantial changes to its terms.
- UK public sector. Under the Procurement Act 2023, a framework may last up to four years, or eight for defence, security and utilities frameworks, with exceptions the authority must justify.
- US federal. Under multiple-award contracts, each awardee must have a fair opportunity to be considered for each order above the micro-purchase threshold, with extra steps for orders above $7.5 million.
This two-layer model changes how the process is run. Steps 1 to 3 must foresee the call-offs: how needs will be described, which award rule applies, and how prices may change during the term. The supplier management guide explains how referenced suppliers are qualified and kept fit for use between tenders.
What happens after the contract is signed (step 7)?
Step 7 turns the contract into daily buying. It is the step most often skipped, and the one that decides whether the savings are real.
- Set up the supplier for ordering and load the prices into the catalogue or the procure-to-pay system.
- Tell users what changed: which supplier, how to order, and what happens to old suppliers.
- Block or close the old contracts, so that orders do not drift back to previous suppliers.
- Measure savings against the baseline set in step 1, and spend under the new contract against spend that could have used it.
- Run supplier performance management on the new supplier from the first month.
- Plan the next cycle: note the end date of the contract and start step 1 again early enough to finish steps 1 to 6 before it ends.
The KPIs that most programmes report, such as savings against baseline, spend under contract and sourcing cycle time, are listed with their formulas in the strategic sourcing guide.
What does the process look like on a real category?
A fictional company with 12 sites buys office cleaning from seven local suppliers. The table follows its project through the seven steps.
| Step | What the team does | Output |
|---|---|---|
| 1. Profile | Spend analysis finds 60,000 m² cleaned, seven suppliers, average price €2.00 per m² per month: €1,440,000 a year | Baseline of €2.00 per m², agreed with finance |
| 2. Market | Request for information to 15 firms; 9 answer; 6 qualify (insurance, safety record, capacity in both regions) | Market report, six qualified suppliers |
| 3. Strategy | Two regional lots, one supplier per lot, three-year framework with a one-year option; quality 40%, price 60% | Approved sourcing strategy |
| 4. Go to market | Request for proposal to the six qualified suppliers, four weeks to answer, site visits in week two | Six proposals received |
| 5. Evaluate | Panel scores quality; total price compared over three years; one negotiation round with the top two per lot | Evaluation report |
| 6. Award | Lot North and lot South awarded at an average €1.82 per m² per month | Two signed framework agreements |
| 7. Implement | Old contracts ended with notice; new rates loaded; monthly scorecard; new sites ordered under the framework | Savings and compliance report each quarter |
Savings = (€2.00 − €1.82) × 60,000 m² × 12 months = €129,600 a year, 9% of the baseline, and only if all 12 sites move to the new contracts.
Two details make this example hold up. The baseline was agreed with finance before the tender, so nobody can argue later about the starting price. And the quality weight was fixed in the strategy, so the panel could not change it after seeing the prices. When a 13th site opens in year two, it is ordered directly under the north or south framework at the agreed rate.
How is the strategic sourcing process different in the public sector?
Public buyers follow the same seven steps, but procurement law decides how steps 4 to 6 are run: which procedure, which notices, how long suppliers have to answer, and whether negotiation is allowed. The rules differ by country.
- European Union. The directive sets minimum times: in an open procedure, at least 35 days from the contract notice for tenders, five days fewer when tenders are submitted electronically; in a restricted procedure, at least 30 days for requests to participate and 30 days for tenders.
- United States, federal. Above the simplified acquisition threshold, buyers generally give at least 30 days to respond, except for commercial products and services, and publish a notice at least 15 days before the request.
- United Kingdom, central government. The Sourcing Playbook adds steps before going to market for service contracts: published commercial pipelines, a market health assessment, a delivery model assessment (whether to outsource, insource or re-procure) and, for complex outsourcing, a should cost model.
Much public sourcing is also done once for many buyers. Central purchasing bodies run steps 1 to 6 and put frameworks in place; other public bodies then use step 7 only, through call-offs. The government procurement guide explains the procedures step by step.
What support does a strategic sourcing team need?
Strategic sourcing support comes from four places. A sourcing manager can run the process, but cannot do it alone.
- People
- Users who define the need and sit on the evaluation panel, finance to agree the baseline and the savings, legal for the contract terms, and IT or quality for technical categories.
- Data
- Clean spend data by category and supplier, contract end dates, and supplier performance records from the current contracts.
- Tools
- E-sourcing software for requests, auctions and evaluation, plus templates for the strategy, the request and the evaluation model. The procurement sourcing software guide explains how to choose one.
- Outside help
- Central purchasing bodies and group purchasing organisations that have already run the tender, market intelligence services, and consultants for categories the team does not know well.
Where does sourcing end and procurement begin?
In the sourcing and procurement process, sourcing decides who supplies and on what terms; procurement then orders, receives and pays within those terms. The hand-over happens at step 7: the signed contract becomes catalogue prices, a supplier enabled for ordering and approval rules in the procure-to-pay system. From then on, each purchase follows the procurement process: requisition, purchase order, receipt, invoice and payment.
The two meet again at the end. Order and invoice data from procurement show whether people use the contract and what prices they pay, which is the input for step 1 of the next sourcing cycle.
What are the common mistakes in the strategic sourcing process?
- Going to market too early. The request goes out before the need is clear, suppliers answer different questions, and offers cannot be compared.
- No agreed baseline. Savings are argued about after the award because nobody fixed the starting price with finance.
- Criteria changed after the offers arrive. Weights are adjusted to favour a preferred supplier, which is unfair to the others and, for public buyers, unlawful.
- Price only. The cheapest unit price wins, and the cost of delivery, quality failures or changing supplier appears later.
- No step 7. The contract is signed and filed; users keep ordering from their old suppliers, and the savings never appear.
Questions
How many steps does the strategic sourcing process have?
Most methods use six to eight steps; seven is the most common. The names change, but the order does not: analyse the category and its spend, research the market, write the strategy, go to market, evaluate and negotiate, award, then implement and measure. Some methods merge evaluation and award, or split supplier qualification into its own step.
Is the strategic sourcing process the same as the procurement process?
No. The strategic sourcing process chooses suppliers and terms for a whole category, usually once every few years. The procurement process runs every day within those terms: a requisition, a purchase order, a goods receipt, an invoice and a payment. Sourcing comes first and procurement uses its result.
Does every purchase need the full strategic sourcing process?
No. The full process is for categories with large spend, high supply risk or long contracts. Small or one-off purchases use a simpler route, such as three quotes or a purchasing card. Purchases from a category already covered by a framework agreement use a call-off: a direct order or a mini-competition among the framework suppliers.
When should a category be sourced again?
Start before the current contract ends, early enough to run the steps again without an emergency extension. Start sooner when the market changes, for example a new technology or a supplier leaving, when spend in the category grows sharply, or when performance or use of the contract falls and the current arrangement no longer works.
What is a sourcing strategy document?
It is the output of step 3: a short document that records the category baseline, what the market can offer, the number of suppliers and lots, the contract term, the route to market and the evaluation criteria with their weights. It is approved before going to market and becomes the reference for every later decision in the project.
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