Companies both large and small are going beyond outsourcing commodities to outsourcing core or strategic parts. It makes sense for smaller firms with scarce resources to outsource commodities.

Do not assume that you are getting the best price and cannot do better because it is a commodity. You might outsource steel pipes to a distributor and only pay $1 per piece because that distributor buys steel pipes from the mill in bulk. It would cost you $1.20 if you bought directly from the steel mill. That is strategic sourcing, but it never stops. Raw material costs for all types of mills have been escalating at very rapid rates and these mills refuse to sell products at a loss and go out of business. They are better managed today and have surcharges for cost increases that are out of their control such as in raw materials. If the steel mill has a 15 percent surcharge that is passed on to the distributor and the distributor marks up that 15 percent, your new cost will exceed $1.15.

Strategic sourcing would address this issue with the distributor upfront and require that you only pay an increased amount above $1, which is exactly the rate of the surcharge. In other words, you pay the 15 percent surcharge but you don't let the distributor mark up the 15 percent. You could also shop around for mills that are more efficient and have a smaller surcharge or use a different distributor. Even commodities can be managed strategically and this might be required for smaller companies as they look for ways to widen margins with fewer resources.