“It ain’t what you do,

It’s the way that you do it,

That’s what gets results”

5 steps to effective, breakthrough sourcing strategies

The world in general (and business in particular) is getting more and more complex. Both private and public sector organisations are re-shaping by outsourcing, forming partnerships, collaborating in joint ventures and going back to the basics of what made them a success in the first place.

What you need to achieve is a breakthrough in both supply costs and service if your organisation is going to continue to prosper. This needs a strategy for how you source things ... a strategy that has been developed and agreed by all the major players in the design, delivery and use of the goods and services you buy.

Stage 1 : Discovery

The starting point is to decide how to define what you are sourcing. By considering the capability that you are buying instead of the narrow product or service definition.

The Business Requirements Definition sets out what the sourcing strategy needs to deliver if all stakeholders are to be satisfied. It is a structured description of what you need to source from supply markets and covers the full range of stakeholder needs.

The second step in developing your sourcing strategy is to document and understand your starting point. In other words:-

• what are you spending on these products and services? • how does the price you pay compare to benchmarks? • what makes up the cost of those products and services (and by inference, what

profit do your suppliers make)? • what are the supply risks inherent in your current supply chains? • how well do your current suppliers perform?

Stage 2 : Insights

In this step you look beyond the traditional evaluation of markets and suppliers that tell you about products and services and their costs and prices. Here we are looking at the capability of suppliers to deliver your expectations.

In assessing supply market structure you look at the relative power that the different parts of the supply chain have in any particular situation – but with a specific focus on your power versus that of your suppliers in your chosen market.

The starting point for supplier preferencing is to examine a supplier’s assessment of you. A common technique that suppliers use for this is the Boston Matrix.

A useful picture is that of your purchasing portfolio. This is made up from a combination of your supply positioning and supplier preferencing models.

Stage 3 : Strategise

Generating strategy options can be carried out with a peer group using brainstorming techniques. Additionally, it is possible to benchmark similar strategies from other organisations.

Hybrid strategies might also be developed by comparing features of existing strategies and combing to form new strategies. When carrying out comparison, you need to establish success criteria (which usually are the business requirements).

The next step is to develop hypotheses for how you might address the issues you have just identified. We test the hypotheses by asking questions that we need answers to if we are to evaluate the hypothesis as a viable option. If a hypotheses answers all or most of the questions posed then it becomes an option for a sourcing strategy.

Stage 4 : Construct

There are seven types of intervention you can consider:-

1. Market interventions: ways you can influence the market include make versus buy strategies, supplier rationalisation programmes and encouraging new entrants.

2. Technical interventions: these include rationalising or simplifying specifications, innovative technologies and creating intellectual property rights.

3. Cost structure interventions: Lean, Six Sigma, Total Cost of Ownership, Value Analysis and Value Engineering.

4. Work process interventions: external, collaborative processes with suppliers – such as joint planning.

5. Supplier relationship interventions: leveraging or changing your relationship with suppliers to access capabilities

6. Supply chain interventions: design the right supply chain by either eliminating unnecessary intermediaries or using outsourcing

Stage 5 : Optimise

Contract Management has a focus on a specific contract, is in the “here and now” and is interested in making sure that the supplier delivers to the contractual terms.

So, a contract will be let for a specific supplier (who may or may not be part of the SRM programme) operating in a particular category of supply market. The Contract Manager will work with the supplier in monitoring performance and ensuring that the desired outputs and outcomes of the contract are received.

Supplier relationship management is a continuous improvement programme that works with individual key suppliers to drive out innovation and improvements to service and cost

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