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The 7 Steps to an Effective Strategic Sourcing Process

by | April 5, 2018

Procurement organisations come in all shapes and sizes, supporting global corporations right down to SME’s right across the globe. As the profession becomes more established globally, those involved learn to follow a hybrid of the following 7 Step Strategic Sourcing process: Step 1 Profile the category – understanding the category is the first step in the process requiring the collation of demand and usage information; locale, users as well as an understanding of the processes undertaken. Step 2 Supply market analysis – is as it says including identification of existing and potential new global and local suppliers. Involves a detailed review of cost drivers as well as the risks and opportunities available. It is usual to break down all costs such as raw material prices, labor, transportation, support, repair and supplier margins. Step 3 Develop the strategy – cross functionally determining where and what to buy while minimising risk and costs is covered in Step 3. This could reveal single or multiple, make or buy activities to meet demand over the term. It is important to ensure stakeholders are part of the full process including the final strategy signoff. Step 4 Select the strategic sourcing process – choosing and using the various tools and methodologies are primary here. From simple manual or electronic Enquiry and Quote forms to formal PQQ’s, RFI’s, RFQ’s, RFP’s and e-Auctions are utilised here. The documents, processes and tools used can be hugely complex, split into numerous Lots. Key is to ensure Suppliers understand requirements and price accordingly without it being overly onerous or lengthy. Product or service specifications, delivery and service requirements, pricing breakdown and legal and financial terms and conditions as well as evaluation criteria should be included here. Step 5 Negotiate and select suppliers – create a short list, discard those that fail to meet relevant criteria. Undertake single or multiple clarification and negotiation rounds with one or more Supplier. A final selection is usually done by the team and signed off as per the approval process. Step 6 Implement and integrate – notify the successful suppliers and implement or fulfil demand over time or as required. Manage communication and change with the Supplier. Step 7 Benchmarking and tracking results – a key element of the sourcing management process. It is the start of a continuous cycle, starting with benchmarking the current status, monitoring the results and ensuring that full value is being achieved. Back to Step 1 to review the supply market again and restart the process in a constantly evolving marketplace. These processes can be augmented with a range of core tools that include Spend Analysis, e-Sourcing, e-Auctions, Contract Authoring, Contract Management. These tools don’t necessarily need to be integrated together or with the more traditional P2P, Inventory, Financial and ERP solutions prevalent today, however it is best to manage data without duplication. Dependent on the size of the spend and knowledge and experience of the procurement team, categories can be globally or centrally managed, with regional and local procurement supporting as needed. Professional procurement experts that are used to following this process, can obtain significant benefit in terms of supplier performance and competitive advantage for their business. If you want to implement a strategic sourcing process and tools but don’t know where to start then contact our MCIPS qualified consultants for a no obligation discussion.

Useful Links:

Sourcing & Transformation 7 Steps to Procurement Excellence eBook Best Practices for Complex Sourcing Events