| Going beyond the Seven Step Sourcing Process | | | | specification. Potential suppliers must be thought of |
| Purchasing managers and strategic sourcing | | | | as part of the sourcing team, and engaging as many |
| professionals often follow a consistent methodology | | | | as possible will help to develop the most innovative |
| when planning and conducting a sourcing initiative. | | | | and cost effective strategy for the sourcing initiative. |
| Having a process provides a framework that, when | | | | Suppliers generally will not invest resources in |
| correctly applied, can produce sustainable savings in a | | | | competing for business that they have no chance of |
| consistent manner. Creativity in the application of the | | | | winning. If they seem to be an outlier, inquire about |
| strategic sourcing process will have a dramatic effect | | | | their interest and actively attempt to engage them in |
| on the results achieved, regardless of whether a | | | | the process. Suppliers may hold some of the same |
| seven step sourcing process or a customized internal | | | | biases that the internal team held at the initiation of |
| sourcing process is used. | | | | the sourcing project. Attempt to identify and |
| In order to best optimize the results of a strategic | | | | overcome the biases of the supplier. Any given |
| sourcing initiative, there are several questionsthat | | | | supplier may hold the key to a creative solution that |
| should be answered at the project's initiation:o How | | | | can help achieve superior results. |
| can we improve our understanding of the sourcing | | | | Develop Sourcing Strategy |
| process?o What are the X-factors that arise when | | | | The sourcing strategy should be developed and |
| executing a sourcing project?o What other | | | | approached as a fluid, evolving process. Fine tuning of |
| considerations should the sourcing professional | | | | the sourcing strategy will be required as the team |
| account for while administeringthe strategy? | | | | interacts with the potential supplier base through |
| Two frequently overlooked components of any | | | | implementation and measuring results. Take note, |
| strategic sourcing methodology involve the collection | | | | however, that as market conditions fluctuate, or the |
| of innovative market information and the supplier | | | | goals of the organization change, the sourcing |
| approach strategy. Often during the course of a | | | | strategy may need to be revisited. A common |
| strategic sourcing initiative, new product | | | | mistake of strategic sourcing initiatives is to get |
| developments, alternate technologies, and shifts in | | | | stuck on the initial process and strategy regardless of |
| spend patterns present themselves. A Creative | | | | a complex or moving market. Always be prepared to |
| Sourcing(TM) process is dynamic, so the sourcing | | | | revisit the strategy and reincorporate ideas that may |
| professional may need to implement a revised or | | | | have been overlooked in a prior strategy. |
| new strategy to adapt to changing conditions and | | | | One of the first goals of developing the sourcing |
| events. | | | | strategy is to separate the requirements into |
| The sourcing professional should consider how and | | | | minimum needs and maximum desires. Minimum needs |
| when to approach both incumbent and alternate | | | | are those aspects of a potential supplier agreement |
| suppliers during the actual sourcing phase. Imaginative | | | | that must be met (i.e. expedited shipping, company |
| strategies and open communication will help motivate | | | | logo branding, specific payment options). If a supplier |
| suppliers to present the best proposal and optimize | | | | is unable to meet these basic requirements but can |
| the total project results. | | | | provide some unique value, then consider partnering |
| Project Team and the Internal Benchmark | | | | them with a supplier that can meet the minimum |
| The benchmark will set the foundation upon which | | | | requirements. Maximum desires are bonus features of |
| the sourcing initiative will be built and measured. | | | | an agreement that will prove valuable to the |
| Before the benchmark can be established, the | | | | company, but are not "deal breakers". Establishing |
| project team must be assembled. The project | | | | these criteria will and communicating them to the |
| executive or sponsor should identify the best | | | | supplier will assist in the qualification process. |
| resources both internally and externally to work on | | | | Listen to supplier concerns and input on the market. |
| the initiative. The project sponsor must ask the | | | | Communication with the potential supply base is a |
| following questions to begin to develop the team:o | | | | key element to any sourcing initiative. Strategic |
| Who within the core sourcing group is best equipped | | | | sourcing should be a process that is mutually |
| to work on this initiative?o Who can be enlisted from | | | | beneficial to both the customer and the supplier. |
| other departments within the company to participate | | | | Listening to and addressing supplier concerns will be |
| in thecross-functional team?o Should additional | | | | motivating to both parties in the long run. Market |
| resources be recruited from outside the company? | | | | information is invaluable to a sourcing endeavor. The |
| (either consultants orbusiness partners)o What is the | | | | wealth of knowledge that can be obtained from |
| cost of applying these resources? | | | | suppliers will have a positive impact on the project |
| Determining the best, most cost effective resources | | | | outcome and the cost-savings potential. |
| will help to ensure that the ensuing process is a | | | | When sourcing a finished product, consider sourcing |
| focused, collaborative effort that yields tangible | | | | at the component level. In a case study, a large |
| results. Once the project team has been selected, | | | | propane distributor was purchasing propane cylinders |
| the key decision makers must be identified and | | | | fitted with overfill prevention valves from one |
| introduced to the project team. Establishing the roles | | | | supplier. A sourcing strategy was developed to |
| and responsibilities for each team member at the | | | | source the cylinder and valve as separate items with |
| start of the initiative creates a defined structure to | | | | separate groups of suppliers. As a result of sourcing |
| help the process move quickly and effectively. | | | | at the component level, the customer was able to |
| Filter out subjective thinking prior to beginning the | | | | realize significantly higher cost savings than if they |
| initiative. The sourcing professional should recognize | | | | sourced the finished product. This case study also |
| that internal biases may, and usually do, exist. These | | | | shows an example of how creative solutions can |
| biases could include anything from previous negative | | | | increase bottom line savings. |
| experience with the process itself, former suppliers, | | | | Determine whether a single source or multiple |
| or may simply be the opinions of individuals that are | | | | sources is most practical for the product being |
| subjective and unrelated to the initiative at hand. In | | | | sourced. While a single source may provide the best |
| some cases, the sourcing professional themselves | | | | cost savings option due to economies of scale, it also |
| may hold the biases. In these situations, the | | | | limits the customer's ability to rely on other sources |
| professional must make other members of the team | | | | of supply as a contingency plan. Is it best for your |
| aware of their bias, so that other team members can | | | | company to have a sole, competitive source of |
| help make the process objective rather than | | | | product? Or would you be better served by forging |
| subjective. | | | | agreements with multiple suppliers? |
| Prior established relationships with incumbent suppliers | | | | Be careful that internal biases do not arise again, such |
| should be approached in an objective manner. Revisit | | | | as fear of an internal team member that the new |
| past decisions from previous sourcing initiatives and | | | | purchasing pattern may develop additional work load |
| determine what new opportunities may exist this | | | | for them, or that the logistics and material handling |
| time around. If possible, approach the sourcing | | | | may become too cumbersome. At this stage of the |
| project as if it were for a new product in the | | | | process, the critical objective of the sourcing |
| developmental stage. Start the initiative with a clean, | | | | strategy should be to consider all the opportunities |
| objective slate. | | | | and attempt to identify the value in each one, not to |
| Lastly, the project team's motivation should be | | | | disqualify ideas and opportunities. |
| evaluated at this stage of the project.o Are there | | | | Solicit and Evaluate Bids |
| incentives or bonuses available relative to the success | | | | After identifying the sourcing strategy, it is time to |
| of the initiative?o Are high level executives and | | | | conduct the RFX (RFI, RFP, RFQ, etc.) process. The |
| management supportive of the initiative?o Does the | | | | RFX document should be supplier-friendly. One of the |
| team have the sponsorship and ability to drive | | | | most common complaints of suppliers is that complex |
| change throughout theorganization? | | | | static Request for Proposals do not allow them to |
| Positive reinforcement and the idea that the initiative | | | | talk about the benefits, ideas, opportunities, and |
| is a highly visible, true team effort is an invaluable | | | | competitive advantage that they offer, and only |
| component of a successful outcome. Failure to have | | | | allow them to submit a financial response. A |
| all of these components in place at the benchmark | | | | straightforward and uncomplicated document will |
| stage will ensure a mediocre result. | | | | encourage suppliers to participate and allow them to |
| The internal benchmark for recurring purchases should | | | | present their most competitive offer. Keep the RFX |
| objectively define what has been done in the past | | | | open-ended. This gives suppliers the freedom to |
| (qualitatively and quantitatively) and identify the | | | | present more creative solutions and introduce more |
| implications to the spend category of future strategic | | | | fresh ideas into the process. |
| plans. At a minimum the benchmark should identify | | | | Sell to the supplier. Educate the suppliers and market |
| what is being sourced, from whom, pricing structure, | | | | to them the reasons why this business is attractive |
| service level requirements and future considerations. | | | | and valuable. Provide the suppliers' salespeople with |
| For new spends, the benchmark should identify the | | | | the business case that they can take to their |
| purpose of the expenditure and have some | | | | management to drive steeper discounts and more |
| preliminary proposals or cost estimates as a basis for | | | | value-added services. The more there is to offer, the |
| the spend category. | | | | more aggressive the suppliers will be in trying to win |
| At the conclusion of each sourcing event, the | | | | the business. |
| recommended course of action should be compared | | | | During the RFX process, open communication is once |
| to the benchmark and all of the quantitative, | | | | again a key element. Suppliers will often have |
| qualitative and cost avoidance results should be | | | | questions about the RFX document and its content. |
| measured and reported. | | | | These questions need to be addressed so that the |
| Market Assessment | | | | suppliers can effectively respond to the RFX. |
| Traditionally, the next step in the strategic sourcing | | | | Schedule individual time with each supplier to review |
| initiative is to conduct a Market Assessment. Here | | | | the document and ensure that they completely |
| the sourcing team must look at a number of factors | | | | understand the requirements and expectations. |
| in determining the status of the marketplace. | | | | Once the RFX responses are returned, each proposal |
| First, ask the question "Is now the right time to | | | | must be evaluated. Creating a RFX rating matrix can |
| source?" The team must look at marketconditions to | | | | be helpful in determining the value of a proposal. A |
| determine the feasibility of a sourcing initiative.o | | | | rating system will allow the organization to objectively |
| Recent market events such as natural disasters that | | | | recognize both the quantitative and qualitative values |
| cause supply disruptions may hinderthe efforts of | | | | of a proposal. The soft dollar value presented by a |
| both domestic and global sourcing. Commodity areas | | | | supplier can be just as important as bottom line cost |
| can be highly affected by these events. Suppliers | | | | reduction. The rating matrices will determine who |
| may be implementing Force Majeure clauses | | | | meets the minimum requirements and will prioritize |
| contained in contracts.o Currency fluctuations can | | | | and weight the maximum desires outlined in the |
| effect whether offshore sourcing is an attractive | | | | proposal. |
| option at thistime.o What are the competitors doing? | | | | Following the proposal evaluations and further |
| Have competitors recently hit the market in search | | | | qualification of suppliers, the core team can develop a |
| ofprice relief or to try to lock up supply?o Have new | | | | negotiation strategy with the preferred participants. |
| technologies, regulations, policies recently changed the | | | | Negotiate With and Select Suppliers |
| marketplace? | | | | Negotiations with suppliers will begin following the |
| If now is not the optimum time to source, when will | | | | initial bid process. Many sourcing professionals see the |
| the initiative be more successful? When timing is | | | | negotiation as an emotion filled battle with the |
| poor, your best strategy may be to go for a | | | | supplier. In most negotiations, the best approach is to |
| contract extension at existing prices. A full sourcing | | | | reduce or altogether remove emotion from the |
| event can be conducted at a later date when market | | | | negotiation, and instead rely on a fact-based |
| forces are more favorable. | | | | objective market picture for leverage with suppliers. |
| Review market price trending in the product area | | | | With the proper market research, a solid business |
| you are planning to source. Have prices increased or | | | | case can be made to the supplier and will drive them |
| decreased over the past 12 months? Is supply tight | | | | to a competitive offer. Look for creative ways to |
| or is product abundant? In many product areas, there | | | | motivate the supplier by making them aware of |
| are several moving parts that need to be tracked. | | | | some of the indirect financial aspects of winning the |
| Indexed-based commodities and products are moving | | | | business, such as capturing a new market or taking |
| targets that require ongoing attention to monitor | | | | business from a primary competitor. |
| market movements. Investigate not only the history | | | | Emotional tools are best used to create healing in a |
| of the market, but research what the experts of | | | | relationship as opposed to negativity. This is also the |
| analysts of that market are predicting. A minimal | | | | last opportunity to address any biases that may |
| financial investment in this data now can potentially | | | | remain from the beginning of the sourcing process. |
| reward the project with significantly higher savings in | | | | Use emotional tools to create a need within the |
| the future. | | | | supplier to correct some past problems in the |
| Assess any new developments in the market. Are | | | | process or service. Provide the bidder the |
| there emergent technologies that will give your | | | | opportunity to repair the relationship by providing |
| company a competitive advantage? Is the | | | | additional incentives in their offer. |
| marketplace moving toward an innovative solution | | | | Measure each supplier proposal against your internal |
| that may provide a cost advantage in the near | | | | benchmark from both qualitative and quantitative |
| future? Buying at the end of a product life cycle | | | | aspects. Are there one or more suppliers that stand |
| could cause the organization to overpay for outdated | | | | out from your current relationships? Are the savings |
| technology. Research and attention to these factors | | | | or process improvements dramatic enough to |
| will help avoid a potentially costly mistake. | | | | warrant a pilot with an alternate supplier? If not, |
| Collect Supplier Information | | | | consider using the market information collected to |
| After the initial market assessment, look to qualify as | | | | enter into a fact based negotiation with your |
| many suppliers as possible. Limiting the potential | | | | incumbent suppliers. |
| supplier base can only limit the opportunity for a | | | | Selecting a new supplier has three main |
| successful initiative. The larger the potential supplier | | | | considerations: monetary cost of change, political cost |
| base, the greater the chance to identify innovative | | | | of change, and the time frame for change. What are |
| opportunity and increased value. | | | | the transitional costs associated with a new supplier? |
| Begin collecting information on the potential supplier | | | | How will this affect established relationships between |
| base. The main focus should be to cast a wide net | | | | your organization and the incumbent supplier? How |
| into the market. Identify the supplier base of | | | | long will it take to implement new ordering processes |
| competitors. Consider foreign suppliers even if there | | | | and software programs? Are there regulatory or |
| is no intent to import. Foreign suppliers may be willing | | | | governmental issues that need to be addressed? |
| to establish domestic importers or distributors if your | | | | And, most importantly, do we have the ability to |
| volumes are high enough or they intend to establish | | | | drive the change throughout the organization? |
| themselves in the marketplace. Their motivation will | | | | Implement Recommendations |
| be to establish a foothold in a new market. This can | | | | The final milestone of the sourcing initiative is to |
| potentially be used as an advantage in negotiations. | | | | implement the recommended plan of action with the |
| After developing the first pass supplier list, establish | | | | suppliers. The key to successfully rolling out the |
| contact with each one to gauge their interest and | | | | results of the initiative is to exercise change |
| viability in this initiative. Does this supplier have | | | | management control. Effective change management |
| potential to become a part of my existing supply | | | | will ensure a smooth transition into the recommended |
| base? Are they able to provide the required service | | | | actions, eliminate encumbrances to new processes, |
| and volume commitments? If suppliers do not meet | | | | and optimize the results of the project. |
| these qualifications, ask who they would recommend | | | | The strategic sourcing process should not end at |
| as a potential participant, or how they would suggest | | | | implementation. Performance metrics should be put in |
| fulfilling the requirement. Be creative in finding | | | | place to ensure the positive results of the initiative. |
| alternate suppliers. Networking with fringe suppliers in | | | | Suppliers as well as internal processes should be |
| this initiative can foster healthy relationships that may | | | | audited to ensure proper results well after the close |
| benefit a future project. | | | | of the implementation. Continue to keep suppliers |
| At this stage, most traditional sourcing processes | | | | (and even potential suppliers) engaged as the |
| utilize an RFI process to develop a short list of | | | | organization grows so that there is always interest |
| suppliers. However, it is too early in the sourcing cycle | | | | from the suppliers in providing the best and most |
| to disqualify suppliers that want to participate. | | | | innovative solutions to the organization. Creative |
| Disqualifying suppliers at this time may cause you to | | | | Sourcing(TM) begins and ends with knowledge of the |
| miss a creative or innovative idea that may lead to | | | | marketplace. |
| the modification of the initial requirement or | | | | |