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Strategic Sourcing / Alliance Agreement

One of the most innovative solutions to face the changing market realities or internal business requirements is by implementing the concept of strategic alliance:

A strategic alliance is a joint effort by two or more companies linked together in the supply chain to reduce the total cost of acquisition, possession, and disposal of goods and services for the benefit of all parties.

There are some reasons for companies to form strategic alliance. One of the most common goals is inventory reduction through some approaches:

  • vendor-managed inventory
  • inventory consignment
  • dead stock and surplus inventory buy-backs
  • JIT delivery
  • inventory standardization

 Strategic Alliance 5

The ultimate goal, however, is to reduce the total cost of ownership

Strategic alliance shall focus on the total cost reduction if companies work together, rather than focus on price. Company shall identify the cost drivers within the supply chain, not only the obvious cost they can see such as price, invoicing, ordering, etc. Companies working together in the alliance must understand each other's cost drivers to truly eliminate the internal waste and inefficiencies along the supply chain so that the partnership relation benefits all parties.

Strategic alliance processes move through stages of Discovery, Implementation, and Maintenance.

  • The Discovery stage deals with products selection (commodity planning), objectives and cost drivers, risks and performance to consider, and the type of desired relationship. This stage is resulted in picking the right, sound alliance partner.

Strategic Alliance 2


  • The Implementation stage is where the alliance begins; setting the agreement and improvement objectives, structuring the alliance to allow parties operate efficiently, managing the change and avoiding disruption to the alliance, and identifying and dismantling the roadblocks.
  • The Maintenance stage is how to keep the alliance stay healthy and viable. Evaluation of the alliance must be done in this stage in terms of set targets and total cost. Building trust and learning to better communicate between partners are developed in this stage.  

Supplier Capability Review:

Strategic Alliance 3

Continuous Improvement and Learning Process to develop assessment tools for conducting Supplier Capability Review as part of the process of strategic sourcing partnership contract development to ensure Contractor/Supplier capability to meet  Company’s needs and requirements: continuous improvement and learning process for supplier performance and quality improvement.

Strategic sourcing requires vision and leadership commitment from the executive level. Suppliers early involvement is formed in earlier stage by establishing internal cross-function teams.  





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