A practical approach to understanding Strategic Sourcing - Part 2 -

Last week we published Part 1 of our series on Strategic Sourcing. There we dealt with three basic questions about the sourcing process, its business applications, and its strategic importance for businesses of all sizes and industries. - Link as follows -

Here in Part 2, we will cover three more questions:

1) What are the elements of the sourcing mindset?

2) What are the steps of the sourcing process?

3) What can small and medium-sized companies do when they don't have a Purchasing Department at their disposal, as most large corporations do?

Let's get going with today's topics:

1) What are the elements of the sourcing mindset?

We believe that cultivating a mindset is a fundamental step in executing the sourcing process consistently well. Mindsets guide us, help us resolve obstacles, and provide us with a compass that keeps us moving forward in the right direction.

When embarking on a project, most sourcing experts gravitate towards these four dimensions, eager to unearth the ideal solution. The accompanying image illustrates how these elements converge in the creation of a balanced sourcing mindset.

Let’s break these down.

The Technology Dimension. Understand how things are done and how the world is trying to do the same things differently.

The Product or Service Dimension. Research what products or services exist in the industry marketplace that best satisfy the need. How are they delivered, priced, and what is their impact on the environment?

The Supplier Dimension. Evaluate the suppliers based on the desired characteristics—financial stability, volume capacity, scalability, quality rankings, pricing and conditions, after-sales service, and so forth. Ultimately you want to answer the question: with whom do we want to do business?

The Business Dimension: Determine which business approach best satisfies the need. Restricted buying, opening a bidding process, outsourcing, creating a partnership, and so on.

2) What are the steps of the sourcing process?

Understand the need. As experts, when we hear someone describe a problem within our domain of knowledge and experience, we can be tempted to quickly say: "oh ok, yeah, I get it, I understand." Then we hastily move on to the sourcing phase. We must train ourselves to resist this urge. Instead, take a step back and listen to the client or concerned party as they provide more texture to the problem. Often, they will talk about their desired solution, which will help broaden your understanding of what is important to them. Take notes, share them with the client, define and refine a problem statement, incorporate the client's feedback, and refine it again. Having a clear definition of the need that is agreed to by all involved in the project will save everyone time and money.?

Research, research, research. The business world does not slow down; new technologies, faster services, cheaper methods and disruptive innovations may appear everyday. As sourcing professionals, we don't just go out and look for something when a client asks. We look continually and voraciously. We want to have the latest relevant information within our industry of expertise. Think of it in this way: while sales professionals build a Customer Relationship Management (CRM) database, experts in sourcing build a Sourcing Intelligence Database (SID) which contains not only contact information about the supplier, such as names, location, product, and industry, but also relevant decision-making data, such as volume capacity and scalability, quality rankings, financial status, technology, and so forth. Later, in the field, when a client's need is being studied, the information on this database provides a solid start in identifying potential countries and companies better suited to resolve it.

Analyze information. As a result of our research, we are likely to have copious amounts of information. In order to narrow things down, a rule of thumb is to define selection criteria. For example, you may ask yourself: what countries represent a desirable sourcing location from a logistics and an international trade agreement point of view? Other criteria could be the minimum supplier size we are willing to do business with, the supplier's position with respect to quality indicators, the company's financial status, price ranges, warranty, among others.??

Develop the Sourcing Strategy. After carefully analyzing the researched information, a plan will be crafted. For example, you might open a bidding process or you might decide to go with a single source or single supplier without a bidding process. Deciding to go with a higher priced supplier is often the result of a strategic decision, so it's outsourcing or partnering, and so forth.

Negotiate and Select the Winner. Conducting a bid includes its own series of steps. Shortlisting suppliers again according to a given set of criteria is one of them, and entering into contract negotiation is another. Negotiation involves so much more than haggling; it sets the foundation for two companies to do business together over a landscape that provides the optimal conditions for both, and in doing so, creating a lasting business relationship.?

Implementation of the Supply Chain. Implementation can take many forms according to the type of business that will be carried out. Ideally, your supply chain implementation project should include a transition plan, a document that describes when and how the exchange of value between the parties will commence and how it will be sustained. Secondly, a performance indicators agreement should be in place, one that describes the quality, delivery, and cost standards to be met for the value provided by one party to be acceptable to the other. The standard processes that will be carried out to resolve problems, including acceptable timings, should also be included in the implementation of the supply chain. Lastly, it is of utmost importance that all these elements - transition plan, indicators, standards and so forth - are included in the contractual agreements to ensure that any misunderstanding can be resolved through the letter of the formal documentation accepted by both parties.??

3) What happens when you don't have a full-time Purchasing Department at your disposal?

Small and medium-sized companies are not likely to have a Purchasing or Sourcing Department that can implement all these activities. However, they too require sourcing information so that they can make strategic decisions and implement beneficial supply agreements.?

The short answer is that the business owner or one of a few trusted employees or partners is most likely to take on this role, on top of their regular responsibilities. As a result, it is possible that some of the crucial steps to the sourcing process will not be met, or that the task is continuously postponed due to day-to-day business priorities. In either case, the consequences can be severe for the business.?

Luckily, small business owners can count on the expertise of sourcing services providers. Such services can conduct the studies their companies need, giving them access to relevant and complete reports before they embark on making strategic decisions for their companies.

By: The Ana Lovera Inc and Sourcing Values Editorial Team. Copyright 2022.

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