In Part I we recapped Sourcing today, in Part II we did a deep dive into the key requirements of the review step as it is today, and then in Part III we did a deeper dive where we explained that while some steps were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of skilled talent time as the majority of the tasks could be automated. Then in Part IV we began our deep dive into the needs assessment phase which ended yesterday in Part V where we again explained that there were two types of tasks in this steps: tasks that required sourcing expertise and tasks that didn’t. Moreover, when we dived, dived, dived, we found out that some tasks required way more sourcing involvement and consideration then is usually applied, and that these tasks can only get done if time is saved elsewhere in the sourcing process.

In this post we continue our review of the typical sourcing process and move onto strategy selection.

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

We again start by describing each key sub-step, what is required and what is involved.

The first step is pretty obvious on the surface. In the Supply versus Demand Market Dynamics step, you attempt to evaluate the power of the buyer versus the power of supplier. You focus on projections of current total demand, total supply, and expected changes of the dynamics based upon past trends, and move forward with your answer. But this is usually at a macro-market level and not a micro-market level. Usually within a market, there are products where demand is dominant (like iPhone 8) and almost nonexistent (like the OnePlus). If you want the component that is in the most demand, that can be much more unbalanced to the supplier’s favour than if you want the component that is in least demand, where the supplier might actually have excess inventory and you might actually have a bit of leverage. When it comes to the market, there’s always more than meets the eye from the 30,000 foot view.

The second step is easily defined but hard to execute. When sourcing globally to serve global markets, the needs vary by market, and so do the capabilities. This means that not only must a sourcing professional understand how the needs, and values, vary globally but also how the capabilities of the supply base vary, and, most importantly, how those variations limit their capability to serve the organization in some markets. If a factory cannot produce products or services without certain materials that are restricted or banned in some countries, that can be a problem, especially if you do not know up front. If there are embargoes on the supplier’s home country by the country or countries of the intended market, that’s a problem if the supplier does not have other global operations where there are no embargoes. And so on. But how does one identify all the potential impediments and map them against the needs? Usually, lots and lots of manpower and a little bit of luck that nothing important is missed.

The third requirement is as easily defined as the second, but can be even harder to execute. If you’ve been using a supplier for years, consistently documenting performance and results, and have a team that knows the track record, you have a pretty good idea of the strengths and weaknesses of that supplier. But what about the suppliers you’ve just started using or, more typically these days, haven’t used but need to consider to either meet a diversity or innovation goal. How do you figure out the strengths and weaknesses? Where do you begin?

The final requirement should be pretty simple. When does the sourcing process need to finish by. Just take the date from the stakeholder, negotiate for a bit more time, and go. But is that really all there is or the right way to go about it? We’ll discuss more in our next post because …

We are again at the situation where the amount of work entailed in each step varies and the time requirements can be days to weeks (or even months in large global operations). And maybe it should be that way, sometimes, considering this is really the make or break step of every sourcing process. But all the time? Come back for Part VII where we dive even deeper into this key sourcing step.

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.