Sourcing Activities

Steps

The steps in a strategic sourcing process were defined, in 1994, as:

• Assessment of a company’s current spending (what is bought, where, at what prices?).
• Assessment of the supply market (who offers what?).
• Total cost analyses (how much does it cost to provide those goods or services?).
• Identification of suitable suppliers.
• Development of a sourcing strategy (where to purchase, considering demand and supply situations, while minimizing risk and costs).
• Negotiation with suppliers (products, service levels, prices, geographical coverage, Payment Terms, etc.).
• Implementation of new supply structure.
• Track results and restart assessment (Continuous cycle)

A slimmed down strategic sourcing process was defined, in 2012, as:

• Data collection and spend analysis
• Market Research
• The RFx process (also known as go to market)
• Negotiations
• Contracting
• Implementation and continuous improvement

Sourcing plan

The sourcing plan is the result of all planning efforts on strategic sourcing. Into this planning, all sourcing events are organized and detailed with tactical and operational information such as the sourcing team responsible for each event, when the sourcing event is supposed to begin and end based on each RFX step (RFI, RFP, RFQ), the requirements, specifications of all services or materials, and negotiations/cost goals. The objective of the sourcing plan is to manage the timing and quality of all sourcing events in the strategic sourcing program. Many procurement professionals continue to conduct sourcing and RFX activities manually using spreadsheets; however, this creates risk for error and gaps in the sourcing process.

Sourcing optimization

Operations research is a discipline of applying advanced techniques to help make better decisions. Optimization, in turn, utilizes mathematical algorithms to rapidly solve a business problem by evaluating all possible outcomes (or many outcomes) and selecting those ones that yield the best solution.

When applied to sourcing and supply chain operations, optimization helps the sourcing professional simultaneously evaluate thousands of different procurement inputs. This evaluation can take into consideration the global market, specific current supply chain conditions, and individual supplier conditions, and offers alternatives to address the buyer’s sourcing goals. Furthermore, it allows internal stakeholders in the buying organization to impose constraints on the award or specify preferences to favor certain non-cost objectives such as limited switching, reduced supplier numbers or higher quality outcomes.

Cooperative sourcing

Cooperative sourcing is a collaboration or negotiation of different companies, which have similar business processes. To save costs, the competitor with the best production function can insource the business process of the other competitors. This is especially common in IT-oriented industries due to low to no variable costs, e.g. banking. Since all of the negotiating parties can be outsourcers or insourcers the main challenge in this collaboration is to find a stable coalition and the company with the best production function. This is difficult since the real production costs are hard to estimate and negotiators might be tempted to portray their real cost much higher than they actually are in order to demand higher fees for insourcing. High switching costs, costs for searching potential cooperative sourcers, and negotiating often result in inefficient solutions.

Sourcing business models

Sourcing Business Models are a systems-based approach to structuring supplier relationships. A sourcing business model is a type of business model that is applied to business relationships where more than one party needs to work with another party to be successful. There are seven sourcing business models that range from the transactional to investment-based. The seven models are: Basic Provider, Approved Provider, Preferred Provider, Performance-Based/Managed Services Model, Vested outsourcing Business Model, Shared Services Model, and Equity Partnership Model. Sourcing business models are targeted for procurement professionals who seek a modern approach to achieve the best fit between buyers and suppliers.