On the first day of X-Mas
my blogger gave to me
a lesson in strategy.
Even in these uncertain times, everything should be sourced.
As I said before, two years ago to the day in fact, this doesn’t mean that you should apply an intense multi-stage strategic sourcing effort to everything you buy, but that you should have a strategy for dealing with every category — since that’s the key to success across the board. Some categories will be tackled with negotiation, some with strategic sourcing decision optimization, some with reverse auctions, and some with spot buys.
One way to start is to breakdown your spend by category (direct, outsourced, indirect/MRO) and part type (commodity, custom part, or strategic part). This gives you the following methodology grid:
||Direct||Outsourced Services||Indirect / MRO|
|Strategic||Collaboration with a small set of strategic suppliers||Dedicated Contract Owner||Collaboration with a best-in class provider for each category of services|
|Custom||Decision Optimization on a Pre-Qualified Set of Suppliers||Managed by a Strategic Outsourcing Provider||Managed by a Senior Sourcing Professional|
|Commodity||Reverse Auction||Multi-Stage RFX||Lowest Bid|
For direct and indirect spend, you can also approach the problem by opportunity type:
|Too many vendors||Spend consolidation with 2-3 vendors|
|Too few vendors||RFX to add vendors|
|Insufficient vendor knowledge||RFI|
|Insufficient solution knowledge||RFP|
|Insufficient vendor bids||RFQ|
|Insufficient bid movement||Auction|
|Complex bids / Constraints||Decision Optimization|
|Contracts unavailable||Contract Management|
|Unmonitored contracts||Procurement Audit|
|No spend baseline||Spend / Invoice Analysis|
|Overly complex category||Disaggregation|
|Uncoordinated Sourcing Efforts||Program Management|
And, as Charles (of Next Level Purchasing), Eric (of BIQ), and I have said before, you should segment your opportunities into quick hit opportunities (that can be accomplished by an invoice review or quick reverse auction event), near term strategic sourcing opportunities (that can be accomplished by a multi-round sourcing event employing sophisticated negotiation and decision optimization techniques), and longer term supplier relationship / collaboration opportunities (that require changes in methodology and production). This allows you to get some quick wins to fund your efforts, some near term wins to demonstrate the long-term effectiveness of a strategic sourcing program, and long-term wins to bring continued success in the years ahead.
Although it’s hard to say with complete confidence what the best methodology is for any given organization without knowledge of the organization and its needs, it is easy to say with complete confidence that the existence of a methodology is sometimes more important than the actual methodology itself as organizations with well-defined methodologies for sourcing consistently outperform those without. (Just like organizations with well-trained and certified teams outperform those without consistent training and experience.) Furthermore, these organizations will tweak the methodology over time based upon experience and continued learning until they end up with a best-in-class approach to organizational supply management.