Monday, September 22, 2014

Strategic Sourcing- The Six Step Process

Strategic sourcing is a structured process that optimizes a company’s supply base, increases efficiency and reduces cost. It is carried out by analyzing spending patterns, defining requirements and aligning the company’s needs with market capabilities.

The corporate spend amount should be divided into different categories based on business units and locations. Furthermore, these spend categories can be classified into four quadrants based on their competitiveness in the supplier marketplace and impact to the organization. The categories in the leverage quadrant can be used for the company’s benefit as they have high impact and there is competition between suppliers. Hence, the company can choose suppliers which provide the best rates along with quality. [1]

Once the categories have been classified into these quadrants, it is necessary to prioritize which categories should be addressed and the following steps should be followed.

Understand the spend category
The sourcing team should understand the usage patterns and the specified grades of each category. Identify stakeholders at different locations. Apart from that collect information about historical expenditure categorized by commodities, users, suppliers and future demand projections.

Assess supplier market
Seek alternative suppliers to get the best rates and quality. Perform a “Should cost” analysis to get an estimate of the cost of the category and then negotiate with the suppliers. The international supplier market may vary based on region as each country has its own set of rules and regulations.

·         Survey the suppliers
Existing and potential suppliers should be surveyed to assess their capability. It enables the company to evaluate the project’s feasibility based on the identified supplier base. The main aim is to match the spend category with the most suitable supplier in terms of maturity, capacity and capability.

·         Build the strategy
It is key to manage the two types of internal stakeholders: Customers and executives. The customers will not be affected by a new supplier until if affects delivery, quality or payment services. For executives service competitiveness and cost are key. The sourcing strategy should be built by keeping these two stakeholders in mind.

·         Select the appropriate supplier
If the market place is competitive, the company can leverage it to get the best technology, innovations and quality at low prices. It can negotiate with suppliers and can ask for additional information.  The negotiation process usually starts with a large set of suppliers and then is narrowed down to one.

·         Communicate effectively with the supplier
Once the supplier had been selected, the company should communicate its requirements, quality standards and timeline effectively. The supplier should be involved in the existing process and should suggest recommendations. The company should closely monitor the supplier’s performance and make changes if necessary

Although strategic sourcing is in favor of the organization, it harms the small business community as they cannot compete with other players in the market. This in turn affects the country’s economic situation. Hence, proper regulations should be put in place so that no one is harmed along the way.


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