Seven Imperative Steps to Strategic Sourcing

Vying to become a world-class procurement agency? Not sure what competencies you need to become a leading supply chain organization? Here are seven ways to help you navigate through the complicated sourcing process from scratch:

    1. Bifurcating Corporate Spend into Categories – This will help in identifying suppliers and determining company’s initial spend. Prepare a spend map for each procurement category while keeping in mind the market competitiveness, sourcing bottlenecks, supply risk and price. Once your matrix is ready, you need to understand: The usage patterns for each product category; shipping specifications; and future demand projections.  Having analyzed all these areas, you will be in a better position to formulate an accurate and reliable sourcing strategy for each product category.

    2. Assessing the Supplier Market – Study existing market trends and supply chain dynamics to know your risks and opportunities when dealing with a diversified supplier base. You can determine your “should cost” data by following the standard practices of key suppliers. The sub-tier marketplace also makes a great tool in determining costs and driving improvement.

    3. Gathering Knowledge of Key Areas – Develop a checklist for both existing and potential suppliers to verify your predetermined spend information. The data derived from the sales system of suppliers will help you evaluate if they are fully equipped to meet your sourcing requirements in terms of: feasibility, volume and technical capability. This checklist will help you narrow down your supplier base while ensuring that your chosen vendors have the required structure and resources to respond to your requirements in a timely and efficient manner.

    4. Developing a Sourcing Model – This is the most crucial phase which involves three important steps that make a solid and reliable sourcing strategy. Let us take examine how this three-step process can help you become a competent sourcing agency:
      • Assessing the competency of the supplier marketplace – When you are armed with all the supplier information you need, you are in a position to create a competitive edge in the market. Once you have determined the pricing structure, you can communicate the same to your potential supplier base to gauge their capabilities.
      • Identifying alternatives to reduce costing and improve processes – A collaborative approach allows you to leverage competitive pricing and increase profitability. For this, you may need to invest in supplier operations which in turn will improve your business processes. Consider every alternative to create a feasible sourcing strategy that fits your spending capabilities. Adopting new technologies will reduce procurement complexities and create corroborative improvements.
      • Evaluating the efficiency of your sourcing agents – Your sourcing agents play a vital role in managing the costs, so they should be competent enough to test supplier relationships. Since they would be consuming most of your spend category, they should be able to handle cost reductions efficiently without putting your supplier relationships at stake. The key objective of your sourcing agents should be cost competitiveness, but they should be able to achieve this goal without making any compromises on client servicing. The ability to foresee impending risks and find ways to overcome them is a prerequisite for a successful sourcing business.
    5. Sending out RFPs to Suppliers – A competitive sourcing strategy needs a request for proposal that clearly defines your sourcing requirements to your potential suppliers. The bid should include everything from your evaluation criteria and service specifications to the pricing structure and financial terms. Once all the RFPs are sent out to your prequalified suppliers, allow them enough time to respond to your proposal. You can send follow-up messages to avoid delay and encourage a positive response.

    6. Negotiating With Suppliers – Once the RFP responses start flowing in, it is time to evaluate them against your predefined assessment criteria. This will help you narrow down your supplier list. Negotiate with the finalists and compare the outcomes in terms of cost differences. Brief your team of sourcing agents on the final selection and be sure to take their approval. Keeping them in the loop will ensure that they are prepared to take calls from disappointed suppliers.

    7. Developing a Communication Plan for New Suppliers – Once you have notified all your shortlisted suppliers, it is important to send out the invites for participating in the implementation process. It is now time to implement your communication plan for effective management at every point. This communication plan should include every aspect of the sourcing process right from pricing model and spend category to quality requirements and delivery period. Be sure to involve the finance and customer service department in the plan as any change in the sourcing process will affect their performance and decision-making process.

The first few weeks are critical for every sourcing specialist, so monitor every step closely. The start being the most sensitive timeframe for every new business, you need to ensure that every point in your plan is perfectly executed and makes the most of your capital investments. 

Shruti Agrawal, Director, Excella Worldwide

As the Director at Excella Worldwide, Shruti Agrawal is a strategist with an Electronics Engineering background and always on the lookout for ways to challenge and disrupt business models to make them better.