July 29, 2011 | Sourcing Strategy
In our previous post we discussed that many organizations think they are conducting strategic sourcing even though they are not. In this post we will learn 4 basic questions that can help senior procurement managers identify if their organization is really undertaking strategic sourcing.
GEP has developed a framework to help evaluate your procurement organization.
Do you get a puzzled look from a buyer when you ask to see the standard strategic sourcing process? Or do you get a different answer depending on who you ask within your organization? The procurement space is filled with strategic sourcing processes: 5 steps, 6 steps, 7 steps, 8 steps, but the number of steps in the process is irrelevant. All these processes have the same basic foundation. The point is if you don’t have a standard process, it’s very difficult to determine if you are consistently conducting strategic sourcing or something else. So pick a process, roll it out to your organization, and make sure it is being utilized the way it was intended every time.
Do you have non-procurement stakeholders on the strategic sourcing team? If yes, you are off to a good start. But just having non-procurement stakeholders isn’t enough. What stakeholders do you have? It’s obvious you need someone from the department, facility, or group with a significant amount of spend. However, if the stakeholder is not the true decision maker or doesn’t really know how the product or service is used, they may not be able to provide the necessary level of insight. How engaged are these stakeholders? If you have the right stakeholder on the team that’s great, but if they are not engaged and actively participating on the team then it needs to be addressed. How well does your procurement team understand the needs and requirements of the stakeholders? Asking is the first step. But just because you ask doesn’t automatically mean you will get all of the information you need or that it will be the true needs have been articulated clearly. This often takes time to really understand where the end-users are coming from and what motivates their usage and decision patterns. Have you involved the appropriate finance, technology, or legal representatives? Without them, a promising project can fall flat at the end because of unforeseen requirements. Without understanding the answers to these strategic sourcing questions, you cannot be engaged in true strategic sourcing.
If you ask 5 people in your procurement organization what the organization’s total spend on a particular category is, will you get 5 different answers or 1 common answer? If you get the same answer from everyone, congratulations- you are better than most. Even if you get one answer, how confident are you that the answer is the correct one? If the number doesn’t include all the relevant spend, or includes irrelevant spend, then your organization is not really engaged in strategic sourcing.
The last question is admittedly a little vaguer than the others, but can have a big impact on the effectiveness of strategic sourcing. Knowing where the organization is heading is critical to understanding what to ask suppliers for. For example, if you know that your organization has a big initiative aimed at reducing the consumption of a certain item, it’s much better to focus on negotiating a fixed price than push for a rebate based on meeting different spend tiers. Or if you know your organization plans to consolidate distribution and will be placing consolidated orders going forward, then it’s not worth the time to haggle over shipping costs on low volume orders. Without aligning the goals or initiatives of your organization with sourcing, it’s impossible for it to be strategic.
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Some of the basic strategic sourcing questions that procurement managers can ask are: