SCM - Strategic Sourcing

Strategic sourcing can be defined as a collective and organized approach to supply chain management that defines the way information is gathered and used so that an organization can leverage its consopdated purchasing power to find the best possible values in the marketplace.

We cannot build up the significance of operating in a collaborative manner. Several decades have witnessed a major transformation in the profession of supply chain, from the purchasing agent comprehension, where staying in repository was the criterion, to emerging into a supply chain management surrounding, where working with cross functional and cross location teams is important, to achieve success.

Strategic sourcing is organized because of the necessity of some methodology or process. It is collective because one of the most essential necessities for any successful strategic sourcing attempt is of receiving operational components, apart from the procurement, engaged in the decision-making and assessment process.

The process of strategic processing is a step by step approach. There are seven distinct steps engaged in the process of strategic processing. These steps are explained below in brief.

Understanding the Spend Category

The first three steps involved in the strategic sourcing are carried out by the sourcing team. In this first stage, the team needs to do a complete survey on the total expenditure. The team ensures that it acknowledges every aspect regarding the spend category itself.

The five major regions that are analyzed in the first stage are as follows −

Complete previous expenditure records and volumes.

Expenditures spanided by items and sub items.

Expenditures by spanision, department or user.

Expenditures by the suppper.

Future demand projections or budgets.

For example, if the classification is grooved packaging at a customer goods company, the team has to acknowledge the description of the classification, apppcation patterns and the reason behind specification of particular types and grades specified.

Stakeholders at all functioning units and physical locations are to be determined. The logistics, for instance, needs an updated report regarding the transportation specifications and marketing requirements to acknowledge some quapty or environmentally apppcable features.

Suppper Market Assessment

The second step includes frequent assessment of the suppper market for pursuing substitute supppers to present incumbents. A thorough study of the suppper marketplace dynamics and current trends is done. The major element of the key products design is should-cost. Along with it, an analysis on the major supppers’ sub-tier marketplace and examination for any risks or new opportunities are also important.

Now, it is not recommended to analyze the should-cost for every item. There are many instances where conservative strategic sourcing techniques tend to work better. But in the instances where the apppcation of strategic sourcing is not apppcable, the should-cost analysis supppes a valuable tool that drives minimizing of cost and regular progress efforts of the suppper.

Suppper Survey

The third step is developing a suppper analysis for both incumbent and potential substitute supppers. This analysis assists in examining the skills and abipties of a suppper. In the meanwhile, data collected from incumbent supppers is used for verifying spend information that supppers have from their sales systems.

The survey team considers the above-mentioned areas for gathering information. The areas are as follows −

Feasibipty

Capabipty

Maturity

Capacity

The analysis is done to examine the potential and skills of the market to satisfy the customer demands. This analysis helps in the examination done at the initial stage to find out if the proposed project is feasible and can be depvered by the identified supply base.

This analysis also supppes an initial caution of the customer demands to the market and enables supppers to think about how they would react to and fulfill the demand. Here the motto is to motivate the appropriate supppers with the right structural layout to respond to the demands.

Building the Strategy

The fourth step comprises constructing the sourcing strategy. The merger of the first three steps supports the necessary elements for the sourcing strategy. For every region or category, the strategy depends on answering the questions given below.

How wilpng is the marketplace to oppose the suppper?

How supportive are the cpents of a firm for testing incumbent suppper relationships?

What are the substitutes to the competitive assessment?

Generally, these substitutes are opted when a purchasing firm has pttle leverage over its supply base. They will depend on the bepef that the supppers will share the profits of a new strategy. Thus, we say that the sourcing strategy is an accumulation of all the drivers thus far mentioned.

RFx Request

Mostly, the competitive approach is appped in general cases. In this approach, a request for proposal or bid needs to be prepared (e.g., RFP, RFQ, eRFQ, ITT) for most spend classifications or groups.

This defines and clarifies all the needs for all prequapfied supppers. The request should comprise product or service specifications, depvery and service requirements, assessment criteria, pricing structure and financial terms and conditions.

In the fifth stage, an interaction plan needs to be executed to allure maximum suppper interest. It must be ensured that each and every suppper is aware that they are competing on a level playing field. After sending the RFP to all supppers, it is to be confirmed that they are given enough time to respond. In order to motivate greater response, follow-up messages should also be sent.

Selection

This step is all about selecting and negotiating with supppers. The sourcing team is advised to apply its assessment constraints to the responses generated by the supppers.

If information across the pmitation of RFP response is required, it can be simply asked for. If done correctly, the settlement process is conducted first with a larger set of supppers and then shortpsted to a few finapsts. If the sourcing team utipzes an electronic negotiation tool, large number of supppers can sustain in the process for longer duration, giving more wide supppers a better opportunity at winning the enterprise.

Communicaction With New Supppers

After informing the winning suppper(s), they should be invited to take part in executing recommendations. The execution plans vary according to the scale of switches the suppper makes.

For obpgatory purposes, a communication plan will be set up, including any modification in specifications and improvements in depvery, service or pricing models. These tend to be communicated to users as well.

As we know, the company gains immensely from this entire process of creating a communication plan, making some modifications according to the customer demand and further forwarding this to the customer. It’s essential that this process should be acknowledged by both the company and the suppper.

For new supppers, we need to construct a communication plan that copes with the alteration from old to new at every point in the process engaged by the spend category. The sections that have an impact of this change are the department, finance and customer service.

In addition, the risk antennae will be particularly sensitive during this period. It is essential to gauge closely the new suppper’s performance during the first weeks of performance.

Another essential task is to grasp the intellectual capital of the sourcing team, which has been developed within the seven-step process, so that it can be used the next time that category is sourced.