In Part I, we recapped sourcing today, a multi-step process where each step had multiple sub-steps that were typically done sequentially in a long, manual, process that typically took too long, delivered too little, and still kept steps that delivered no value. Why?
Well, the short answer is that there was no better method. The longer answer is that they had to try everything that might deliver value, to at least show that an effort was made. But is this really sourcing?
Let’s consider our deep dive into the Review step in our last post. We discussed four sub-steps:
- Product Requirements
- Current Supply Base
- Known Market Pricing
- Alternative Options
A detailed review of product requirements to ensure that the key sourcing considerations are known is certainly a key part of sourcing. And so is identifying alternative options, especially if supply is constricted, the category is high dollar, but what about current supply base identification or market pricing identification.
While those are certainly key knowledge factors for sourcing, should they be key activities for sourcing?
The answer is no. Let’s deal with the supply base identification issues first. You should know who your suppliers are, who your potential suppliers are, and who their competitors are. After all, if you are using proper Supply Management systems, you know who the suppliers are that you are doing business with and what you are doing business with them for. If you are maintaining proper event history and audit trails, you know who else has been invited to your sourcing events, what they were invited for, and what they offered to bring to the table. Plus, if you make use of modern supply chain networks, all of the information you have indicate who all of their direct competitors are. Why should it require any elbow grease on your part? It should be pretty much automatic to figure out who, when, and why.
Same for market pricing. With all of the market indices online, you should know all the costs for all of the raw materials and commodities you use on a daily basis. This will also include energy costs, market labour costs, and average margin for the industry and this should allow for the automatic calculation of expected costs models for just about any custom engineered product you could imagine. It should pretty much be automatic.
These two tasks, which can often take days and weeks, should, respectively, take minutes and just a few hours to verify the cost model is accurate and the suppliers are okay to invite to an RFI.
The short answer is Sourcing has to change, and time spent on strategic consideration not tactical box checking and calculation.