Strategic Sourcing
Strategic Sourcing Process
The Kraljic Matrix?
Non-critical items
Bottleneck items
Leverage items
Strategic items
Low risk
Low impact upon organizational profitability
Reducing administrative burden
Suppliers can be easily substituted
High profitability
Low risk
Upon an abundance of highly commodified parts
Focus on efficiency
Profitability is low
The strength in the hands of the supplier
Risk is high
Upon damage limitation
The strength in the hands of the Buyer
High profit impact
Developing long-term supply relationships
High supplier risk
Step 4: Choose Competitive Selection or Supplier Development
Step 5: Select Supplier(s) and Negotiate
Step 3: Generate Supplier Profile
Step 6: Implement & Integrate
Step 2: Develop a Category Sourcing Strategy
Step 7: Benchmark & Track Results
Step 1: Profile the Category
Defining the category/ commodities in it
The current quantity used/ Types/sizes
Who are the users?
where are they located?
what are the processes used?
Who else is involved in the supply chain?
Analyze the suppliers’ marketplace (risks/opportunities)
Valuations Price of main materials/other variables( labor/ transportation)
Study the cost components of the product/ service
Identify potential new global/ local suppliers
Calculate supplier cost factors
Deciding where to buy
Minimizing risk and costs
Using a cross functional project team is a must
Strategy will depend on real alternatives
The evaluation criteria are also stated
Use a Request for Proposal process for soliciting bids
Delivery and service requirements
Pricing breakdown
Product or service specifications
Cost analysis
Legal and financial terms & conditions
To conduct multiple rounds of negotiations
Get a short list
The first round: after reducing the bids to the valid ones
Work with multiple vendors asking for more clarification and detail if needed
The final selection is done by the team
Signed off as per the approval process.
Notify the successful suppliers
Make sure they're involved in the process
Depending on the degree of changes
Implementation plans vary
The communication plan in the strategic
Any improvement to specifications/ process
Changes in delivery/ service requirements/ pricing
This is a key element
Is the start of a continuous cycle
Starting with benchmarking the current status of the commodity/ category
Monitoring the results
Ensuring that full value is being achieved.
Then back to Step 1
Review the supply market again
Restart the process in a constantly evolving marketplace
Definition
Is a structured approach
Create value from the external resources of the company.
Collaborate to leverage targeted spending
The most important process in
Category Management
Main supporting factors
X Teams
Purchasing portfolio analysis
Spend analysis
Cross -business
Cross -geography
Cross -functional
Multi - functional Sourcing Teams
Category positioning
Buyer - Supplier relative power & relationships
Constraints
Risk analysis
To spot opportunities of value creation
The process of identifying the spend profile of an organization and its supplier
Ensure their business requirements are aligned with the suppliers
Understanding the What, Why & How of Strategic Sourcing
Difference between Tactical Sourcing and Strategic Sourcing
Strategic Sourcing
Tactical Sourcing
Involves developing a proactive, holistic, and continuous evaluation and re-evaluation of the sourcing activities in an organization
Aims to achieve the lowest Total Cost of Ownership (TCO)
Minimal supply chain risk
Reflects the organization’s relationship with its sourcing partners
Views suppliers as crucial value partners
A long-term process
To building sustained collaborative relations
Involves a short-term and traditionally reactive approach towards managing the sourcing activities of an organization
Aim to achieve the lowest possible cost without considering other factors
Can bring gains in the short-term
Prevents sustained optimization of its sourcing operations
Does not require large investment
Advanced technology platform
HR skill set
Needs skilled personnel
Relevant technology platforms and tools
Why do we Need Strategic Sourcing?
Better Alignment of Sourcing and Business
Objectives
Optimization of Ideal Suppliers
Increased Level of Cost Savings
Long-term Relationship Building with Suppliers
How do we Implement Strategic
Sourcing?
Use the 7-step process