In Part I we recapped Sourcing today, in Part II we recapped the review step, and what it entails today. Including a few of the sub-steps that were typically done sequentially in a long, manual, and drawn out process. In Part III we dove into these steps and explained while some were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of time as the majority of the tasks could be automated. But is it just the review step where this is the case?

Let’s move onto Needs Assessment. This consists of a number of sub-steps that include, but are not limited to:

• Detailed Use Case Review
• Exploration of Alternative Options
• Production Requirements
• Support & Service Requirements

Let’s take these one by one. In order to better understand the organizational need, and determine whether or not an alternative option might be as acceptable, or more acceptable, the buyer has to truly understand the organizational need — how will it be used? What are the key end-user requirements? What do they really value? Why? Hence, a key detailed use case review is critical.

An exploration of alternative options is also critical. Identifying potential alternative options is a good start, but you don’t know if they are really alternative options until you explore them in detail and, most importantly, map them to use cases. And, even more important, evaluate them against what users value.

And, depending on the product, the importance of an examination of the product requirements ranges from minimal (if a dozen suppliers all use the same equivalent process and all produce an equivalent product that has met the need for two years, a review that nothing has changed might be all that is required) to intensive (if new production process are, or need to be, employed). And it might range from a cursory review of production line specs to a detailed on-site review of operations and output product quality.

Finally, we also discussed support & service requirements as a key sub-step. Depending on whether the product is single use (like office paper) to multi-use (like laptops) to key components in a machine (like a cylinder in an engine), the step can be minimal or quite intensive as well. Support can range from no support required to continual warranty and maintenance support.

In other words, as with the first step, the amount of work entailed in each step varies, and the time required can be hours to weeks. But should it be this way? That’s a question to answer in Part V.

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.

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. Why?

Let’s take our seven-step sourcing project step by step:

Review:

In this step, the sourcing team reviews the product requirements, which hopefully were developed in consultation with marketing, sales, and other affected organizational units, in order to determine what needs to be considered when identifying a supply base, assessing baseline pricing, and determining if there are alternative options.

Supply base identification will typically involve analyzing the current suppliers, other organizational suppliers that may be able to provide the product, and searching externally for new suppliers (which could involve asking peers, going to trade shows, searching networks, etc.), and then creating a short-list to vet in a multi-stage RFX process.

Baseline pricing will be based off of historical pricing, adjusted for any perceived market factors, cross-checked with public pricing if the product is a commodity, and compared to should-cost models if the organization understands the cost-breakdown and relevant material and overhead costs where the product is being produced.

Identifying alternative options will involve diving into the product specifications, working with engineering to determine which are absolute and which are malleable, and whether the requirements are design driven, reliability driven, or customer driven. Then the sourcing team can determine if alternative options are reasonable to pursue or not.

This will often take a long time. Chances are that the sourcing team:

• will not be product experts, and it will take time for them to understand the product(s) and/or
• will not have easy access to a deep qualified supplier network enriched database and will have to manually spend a lot of time searching for a supplier list and/or
• will not have easy access to integrated market feeds or detailed should-cost models or the knowledge of how to build them and/or
• have the deep knowledge of product and design to identify reasonable alternative options and how to source them, or design a sourcing event that considers both but chooses the best

And sometimes, all four of these options will be true. And in these situations, the buyer will take too long identifying suppliers and product options and continue without enough knowledge of baseline market pricing or alternative options. This means that they will likely miss potentially good suppliers, accept a baseline higher than it should be, and not include the absolute best products for their organization and customers in the mix. And this is just step 1.