Complex Sourcing: Are You Ready?

You’re probably thinking that this is an oxymoron, because Kraljic in his classic Harvard Business Review article on how Purchasing Must Become Supply Management* gave us a simple four-quadrant purchasing model over thirty years ago that you’ve been happily using since you learned about it. However, as Andrew Cox has clearly explained in his latest book on Sourcing Portfolio Analysis, we now know that Sourcing is a lot more complex than one might think it is. Even AT Kearney’s Purchasing Chessboard, which is essentially a twenty-first century update to the Kraljic model that essentially breaks each quadrant into a four by four grid based upon a plethora of factors, and which gives us a 64-square breakdown, doesn’t capture the true complexity of modern sourcing.

Why? As Andrew Cox clearly states in his new book on Sourcing Portfolio Analysis, classic Sourcing analysis methodologies focus on overall supply market dynamics, but buyer relationships are with individual suppliers. Thus, it’s not just the overall market dynamics that matters, but also the power relationship between the buyer and the individual suppliers being considered. However, even this isn’t enough to make a good decision. It’s enough to select a sourcing strategy, but one still has to deal with the large variation between suppliers, products, prices, and requirements before one can select one or more suppliers for an award.

This variation can add more complexity than any two-dimensional grid can capture. As a result, sourcing a category is a complex endeavor that requires a complex tender and a platform capable of handling that complexity. However, until you understand what the dimensions of complexity are, how they can hide in your low and high dollar categories alike (and cost your organization millions of dollars if not properly identified), what is needed to deal with these complex categories, and how you determine if your processes and platforms are up to the task, not only will you not be ready for the complexity, but you won’t even know if you’re approaching the category correctly.

The reality is that even though it’s 2015 and some organizations have had e-Sourcing platforms for a decade, an average organization is still not ready for Complex Sourcing. As discussed in Sourcing Innovation’s latest paper (on) Complex Sourcing: Are You Ready, sponsored by Trade Extensions, the average organization still on first generation e-Sourcing platforms is just not ready and, moreover, doesn’t even realize they’re not ready. After all, most organizations still haven’t caught up to the fact that it’s not a suite, it’s just sourcing (Part I and Part II) and that it’s not optimization – it’s strategic sourcing and that sourcing is much more complex than they like to think it is.

To find out why you’re not ready for complex sourcing and how you can prepare for the next generation of Supply Management, download Complex Sourcing: Are You Ready today. You won’t regret it. It will really help solidify why optimization is not the execution, but the plan as detailed in last year’s paper on Optimization, What Comes Next, still available for download.

* There are reasons that SI is all about next generation Supply Management defined. This is one of them.