Sourcing the Day After Tomorrow Part VII

In this series we are doing a deep dive into the sourcing process today, and, in particular discussing what is involved, what is typically done (manually), and whether or not it should be that way. We have already completed our initial discussion of the initial project request review phase and the follow up needs assessment and are in the midst of discussing the strategy selection.

As per our last post, the strategy selection phase generally has at least these following sub-steps:

  • Supply vs Demand Market Dynamics
  • Geographic Needs and Impediments
  • Known Supply Base Strength and Weaknesses
  • Required Speed

And all of these are pretty strategic. But does that mean that the buyer has to sweat for weeks and months to accomplish the step? Maybe, but the sweat should be psychological, not physical, or, at least not entirely.

Let’s start with supply vs demand market dynamics. The key to success is to collect all of the information required to determine both the macro-dynamics of the market and the micro-dynamics of the market, because the macro can imbalance the market one way while the micro can imbalance the market the other way. And you can spend weeks collecting data and miss the micro market if you are just focussed on the bigger picture. But with the proper category intelligence and market intelligence tools that automatically collect and collate all the data on an ongoing basis, that information is instantly available and the sourcing professional just needs to analyze it.

The key to success in the geographic needs versus geographic impediments step also lies in the data. The data which is better collected by machine than man. The machine can shift through tens, or hundreds, of thousands of global regulations and determine requirements and limitations, can shift through industry and market intelligence databases and determine supplier suitability, and present all of the data to the sourcing team so they can select supplier candidates who can function in the right supply markets and the right consumer markets. Machines can do months of work in minute, allowing the sourcing professional to move onto the next step of evaluating strengths vs. weaknesses.

The evaluation, which will often be as much on the softer relationship and cultural fit side, can be hard for a machine to do, but the flip-side, the product and performance side, is often much easier as the machine can run just about any scorecard and algorithmic analysis you like and filter out all of those suppliers that not only don’t have a basic capability, but are statistically unlikely to perform with respect to your organization’s needs. Plus, if you can collect good survey feedback from a well-designed survey and market sentiment, while the machine cannot identify the best suppliers, it can identify those suppliers that are unlikely to be the best suppliers and allow you to focus first on the higher odd suppliers than the lower odd. It will mess up once in a while, but most of the time it will get you to the destination faster than just driving in circles without a map.

Finally, it can really help you identify what the right speed is. The “our contract is expiring in three months so we need a new contract in three months” argument is not always right. Chances are there is an (auto) extension clause in the agreement, or the agreement can be extended without much of a negotiation. The right speed is often the balance between what it takes to do it right versus what it costs to drag it out versus what it costs to get it wrong. For example, if we are talking a new global telecommunications contract and the spend analysis demonstrates that the organization is currently paying 50% to 100% more than it should, the right speed is typically getting the event done by current contract termination, even if that is in two weeks, as every delay is an overspend that accumulates and the risk of switching from one major provider to another is pretty low. But sometimes the right speed is cancelling a two year contract one year in and eating the penalty as the savings from signing a two year agreement with a hungrier competitor will still allow the organization to see a significant net savings. But if we are talking custom manufactured FPGAs for a new line of satellite communications equipment where units will costs hundreds each and sell for thousands each and one mistake could cripple a product line for six months, then the answer is to take whatever time is needed to qualify the suppliers as the risk is too high. If that means paying double for a few extra months on the boards, so be it.

In other words, we again see that even in the most strategic of the sourcing steps, the strategy selection, the buyers waste much of their time on tactical processes and non-strategic data collection and Sourcing really has to change.