Configuring the strategic sourcing process to work with complex commodities and services
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The strategic sourcing process is a common facilitator that configures an appropriate supplier network with business requirement. All procurement teams will use some element of the sourcing toolkit even if it’s just identifying suitable suppliers.
Strategic sourcing is often used a blunt, but effective, weapon in cost reduction programs and it can be very effective. However sourcing complex commodities or outsource providers for complex services can be difficult.
This is especially true of niche product, or where the requirement is subject to variability. Where innovation or a solution orientated approach is required the typical “expressive” or free text responses are difficult to avoid but are equally notoriously difficult to manage and review. In situations such as these the more traditional tools/forms or spreadsheets can be rendered obsolete and a new process is required.
When faced with these challenges it’s imperative that the sourcing team understand how they will both administer and evaluate the tender before you distribute any RFP’s (request for proposals.) A failure to understand what you are asking for or how you will interpret supplier responses will create confusion and delay. What is key is that you
1/ Are clear in how you will structure your requirement – if you are looking for innovation or a solution try and communicate what benefit you are looking for (e.g. reduced cost, service levels, reduced obsolescence etc).
2/ Understand how you will collect/receive proposals what format will they be in. You may be able to cannibalize your usual RFP template for some aspect of the tender which may make the review process easier.
2/ Determine how you will apply scenarios for example possible business strategies or demand variation
3/ Develop a systematic approach how you will review proposals
4/ Consider what cross-functional support you will need to review subjective content and to further down select suppliers (for example engineering/design or manufacturing input)
The key to complex commodities or services is that they require a close collaboration with a pre filtered supplier base. In these situations its unlikely that merely issuing a RFP will suffice. Cost reduction through innovation or solutions will only partially look at supplier margins whilst the overall proposal will deliver savings (perhaps even staged over the life of the contract). The best solution is likely to involve analyzing business requirement against the need for mutual gain (the suppliers profit and your cost/service level).