Purchasing’s Advice on Selecting a Sourcing Strategy

The second installment in Purchasing’s Strategic Sourcing series offered five more tips to buyers wanting to improve their sourcing programs. The tips they offered were:

  • Know the supplier’s cost
  • Rank the supplier’s importance
  • Seek long term relationships
  • Become a commodity specialist
  • Concentrate on the critical materials

These are all good tips, but it completely misses the main point. A strategy is a (long term) plan of action designed to achieve a particular goal, most often a “winning one”. These are all tactics, or actions taken to achieve a specific effect. They are not strategy.

A strategy results from the detailed analysis of your business, goals, product lines, and supply chain and the options available to you. What are you making, and what do you need to source to make the product? Can you source global, or do you have to source local? What are the processes that need to be respected? For each of the different options, what are the associated costs? Is the product complex, high value, or a combination thereof, or is it simple, low value, or simple and low value?

Based on the answers to these questions, you determine the geographic, negotiation, and category specific elements of your sourcing strategy. The circuit boards are complex and high value, so I have to source from a select group of manufacturers that meet these very demanding criteria. I need to replenish my product stores rapidly for my local restaurant chain, so I need to source from regional suppliers. I need to design a new control system, so I need to focus on suppliers that will work with me to reduce development and production time and cost.

Only when the strategy has been figured out do you start identifying potential suppliers, analyzing their cost structures compared to your should cost models, or ranking their importance with respect to your organizational goals. Furthermore, only once you have an overall supply chain strategy that allows you to separate out the “critical materials” can you concentrate on those materials and become a commodity specialist. So, even though these are all good tips, even combined, they do not constitute a strategy.

If you want a short article that gives you an idea on where to look for an appropriate strategy, I’d recommend J.P. Massin’s post The Strategic Sourcing Matrix quadrants’ characteristics instead.