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Strategic Sourcing Processes

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  • Strategic Sourcing Processes

    Is there a standard process for strategic sourcing that can be applied in any organization or should each define its own? For example: Some companies use the following sequence:

    1. Identify the business drivers / strategic objectives
    2. Analyse the spend and categorise into commodity categories
    3. Create cross functional teams based on organisational / commodity requirements
    4. Investigate the current situation / build a fact base
    5. Identify and quantify opportunities
    6. Finalise commodity strategies and obtain approval
    7. Implement proposed strategy...
    Last edited by bernievn; 09-09-2008, 04:54 PM.
    Is profit made when you buy or when you sell?

  • #2
    Re: Strategic Sourcing Processes

    Originally posted by bernievn View Post
    Is there a standard process for strategic sourcing that can be applied in any organization or should each define its own? E.G. Some companies use the following sequence:

    1. Identify the business drivers / strategic objectives
    2. Analyse the spend and categorise into commodity categories
    3. Create cross functional teams based on organisational / commodity req'ts
    4. Investigate the current situation / build a fact base
    5. Identify and quantify opportunities
    6. Finalise commodity strategies and obtain approval
    7. Implement proposed strategy...
    The short answer is 'yes', which is in the main very similar to what you have described above. The differences are usually in steps 3 and 7 (in your list)!

    (1) Step 3: Depending on the 'strategic objectives', you will find that team memberships can be different , e.g. who is driving the initiatives? Often, and unfortunately "political" influences within the organisation can play a big part in team composition.
    (2) Step 7: The timing of strategy rollout will make a significant difference in the success of strategic procurement initiatives. For example, in the current highly volatile commodity markets, going to the (supply) markets, negotiating deals, and setting up duration for supply agreements very much depend on when the team engages the supply market! This factor may even determine the well-being of the organisation as security of supply may seriously disrupt the business' operations. There are no doubt other implications with timing factor...

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    • #3
      Re: Strategic Sourcing Processes

      Originally posted by bernievn View Post
      Is there a standard process for strategic sourcing that can be applied in any organization or should each define its own? For example: Some companies use the following sequence:

      1. Identify the business drivers / strategic objectives
      2. Analyse the spend and categorise into commodity categories
      3. Create cross functional teams based on organisational / commodity requirements
      4. Investigate the current situation / build a fact base
      5. Identify and quantify opportunities
      6. Finalise commodity strategies and obtain approval
      7. Implement proposed strategy...
      I believe the process you cite is common to most companies, based on common sense applicable, and the fact that there is little difference at this level of viewing, between the approach for different categories. Where the real differences become significant is in the next level down, as soon as the commodity categories are listed (mainly strategic implications, the effect of unknown implications on the options being reviewed, in particular, in my experience which relates mainly to low cost country procurement).

      Other areas include how companies look at the total cost of change and of ownership, and tangible/intangible costs associated with this. This tends to be the area where most lively discussion and alternative views is/are created.

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      • #4
        Re: Strategic Sourcing Processes

        There are more detailed generic processes. The high levels steps are certainly most appropriate, but I have found that even experienced practitioners require a more detailed framework. Modern sourcing is a world appart from setting up buying processes and constitute highly complex projects. For that you need a detailed Work Breakdown Structure (WBS) that is tried and tested, or you might be swollowed whole by your environment!

        May I be so forward as to suggest that where the sourcing process lacks credibility, it was brought on by weak project work structures? When it comes to success factors of sourcing projects, I personnally rate a solid WBS second only to the establishment of proper collaboration.

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        • #5
          Re: Strategic Sourcing Processes

          I know of many multinationals, particularly U.K. and USA organisations that use McKinsey's 7 Step Strategic Sourcing process, as follows:

          1. Identify the Need and Pre-Project Planning
          2. Form Cross Functional Team & Define the Project
          3. Collect Internal & External Data
          4. Perform Strategic Analysis
          5. Formulate Strategies & Develop Implementation Plans
          6. Implementation Planning & Supplier Selection
          7. Measure, Monitor & Report

          Opportunity Analysis is an additional strategic sourcing process which attempts to identify ways to capture new value through sourcing. These opportunities are identified after analysing the business requirements, supplier spend, current sourcing processes and other data sources. An Opportunity Analysis initiative can differ in the number of categories in scope and type of outcome. It also facilitates the identification and capture of sourcing process improvements and savings opportunities.
          Andrew C. Hillman
          Managing Director
          Bespoke Sourcing Solutions (Pty) Ltd

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          • #6
            Re: Strategic Sourcing Processes

            Thanks for your sharing

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