Jun
5
Why understanding the business need is crucial to sourcing process
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So you have a message from the operations team that you have a requirement to buy a particular component which is used on the production line. What steps do you need to take to ensure your procurement plan for this item goes without a hitch?
In order to procure any goods or services the first step is to understand the requirements – what you actually want to procure and why. Getting this process step right is crucial if your procurement is to be successful, getting it wrong can inflict various issues upon the business which as a minimum include increased costs and production disruption.
As part of information gathering, most companies research a range of information which includes:
* What is required (part numbers, description of service etc)
* How much the company is likely to spend over a particular time period (i.e 1-2 years)
* Annual Volumes (how much of the product is required when).
* Specific peaks and troughs in demand signal
* Who are the key stakeholders and what are their needs
* What risk is associated with the products/services required (i.e. is the demand likely to change, is there a squeeze on funding etc).
Whilst most businesses have a sourcing process it’s surprising how many tend to find the first stage so difficult. One of the primary reasons for that is that information (and by that I mean Quality information) can be hard to come by. Demand in particular can be a tricky thing to predict and there can be various influencing factors much of which may be outside the control of the buying organization.
There is often pressure just to get things on order but that is a misstep that can often result in not getting the best deal for your company.
While the above requirements list isn’t an exhaustive list by any means many teams find even the basics difficult. As procurement pro’s we understand that structuring long term need around a commercial agreement rather than just going for what’s required today at today’s (seemingly) lowest cost is optimal but understanding volumes/ spend data etc can be complex. And all too often due to time pressures this part of the process gets overlooked or condensed where it adds little value.
Part of the reason for spending time requirements gathering is to ensure you have everything you need to minimize the issue of either selecting an incorrect supplier or promising something you can’t deliver. I’ve lost count of the number of sourcing horror stories when pricing has been agreed on a demand volume that’s been discovered as without foundation and pricing has risen as a result blowing business cases out of the water.
Of course, all of this needs to be done in a timely manner and not stand in the way of the delivery requirement. It goes without saying as well that the rest of the business should recognize the benefit of this approach and not put undue pressure on procurement to skip this valuable stage.
So how do you get undertake your requirements gathering for sourcing? We’d love to hear your feedback on this article and your thoughts on Why understanding the business need is crucial to sourcing process be sure to use the comments section below: