In part I, we noted that most sourcing cycles are the same, and they all generally consist of the following eight steps:
- Spend Analysis
- Project Selection
- Strategy Development
- Supplier Identification
- Bid Collection
- Bid Analysis and Supplier Selection(s)
- Contract Negotiation and Award
- Post-Award Contract Management
We then noted that at a high level, we know what to do. But then we asked do we really know how to do it? And more importantly do we know what we need to do it right and achieve success? Let’s start with the first question. Do we really know how? For the most part, the answer is yes. Let’s take these topics one by one.
The process of proper Spend Analysis is well understood. You start by identifying the data sources, defining the raw data of interest in each data source, and creating a common schema to map all of the data to. Then you start the lather, rinse, repeat process of classify, map, cube until you have enough data to start an analysis, and, once you have identified the categories to drill into, enough data to accurately do the analysis. Then you start the analyze, asses, report cycle until you have narrowed down your top X opportunities. (For more details on this process, download the free Spend Visibility: An Implementation Guide e-book by Lamoureux & Gunther).
Project selection is fairly straight forward too, it’s simply evaluating the top opportunities identified in the spend analysis phase with respect to alignment with the organizational goals and TTV (time to value). The top Y that best balance identified savings, time to value, and organizational alignment are chosen and (e-)Sourcing projects are initiated.
Once a project is selected, the strategy needs to be identified. Will it be a single or multi-round sealed bid with a final negotiation with the chosen supplier? Will it be a masked or open auction? Or a single best-bid followed by a Total Cost of Ownership Decision Optimization to select the winning supplier(s) for negotiation. Of course, the best savings opportunity and best method will be dependent on current market conditions. If costs have risen sharply since the last contract was cut, the top spend category may not be a good opportunity. If demand is near, at, or exceeds supply, an auction is not likely to get good results. So you analyze the market and opportunity and select a course of action accordingly.
Supplier identification is simply identifying those suppliers who (likely) have products or services that can meet your needs. You can use analyst lists, conference lists, colleague lists, blog lists, and even open directories. You can then cut down to a shortlist after an initial RFI which asks some direct, but easy, questions. (For some good insights on what to ask, start with the SI series on Best Practice Technology Vendor Selection for True Multi-Nationals [Parts I, II, III, IV, V] and Seeking Spherical Supply Solutions? Succeed in the EU! [I, II, III], and if you have access, the archived webinars on the NLPA association site on Making Sense of e- in Sourcing and Procurement: What Solution Do You Really Need? and Acquiring e-Sourcing and e-Procurement Technology: What Questions Should You Really Ask>?)
So we definitely know what we need to do and how to get started. But do we really know what we need to do it right and achieve success? Come back tomorrow as we discuss the last four steps of the process so we can (attempt to) answer the latter question.