This is the fifth article in the series on Strategic Sourcing. In the previous article, I looked at how to develop an optimum sourcing strategy guided by insights from various analyses conducted by the Strategic Sourcing team viz Spend Analysis, Category profiling, SWOT Analyses, PESTEL Analys, Supplier preferencing analysis, inter alia. This article is about how to put the sourcing strategy into action – implementation of the sourcing strategy to deliver the results expected to drive the business forward.
So far, everything that I have discussed in the previous articles were a buildup to this crucial stage. This is the stage where the efficacy of the sourcing strategy, together with the various analyses conducted as part of strategy development, comes under the real acid test. If the sourcing strategy was predicated on incorrect insights from these analyses, forcing implementation will be a futile exercise because it will yield results that misalign with what the business is trying to achieve. The implementation stage is the actual process of going into the market to acquire the goods or services, adopting new innovations, forging of new relationships, redefining and rethinking of already existing relationships by the sourcing team. Insights from both internal and external analyses (assuming they are correct) should lead the sourcing team to ask the all-important question at this stage: “Given these insights, what is the optimum way of engaging with the supply market to acquire the goods or services for which the strategy was developed?” This must have been well outlined in the sourcing plan. However, as indicated in the previous article, regardless of how comprehensive the strategy may have been crafted, it may not perfectly address the supply market when we eventually attempt to implement it. Therefore, it must be continuously adjusted and adapted to the changing supply market circumstances that may arise during the actual implementation process in order to keep it relevant.
The Sourcing Strategy Development process if done properly, would have generated a variety of options on how to go to the market, and the sourcing team would have made a choice amongst the following: using direct negotiation, outsourcing versus in-house production, leveraging a full-blown competitive tendering approach or global sourcing. In this case, two common methods viz Request for Proposal and Request for Quotation, are used. Each method chosen will yield optimum results based on the insights guiding such a choice. I will not cover them in any greater detail, but some nuggets below will suffice to guide the readers in making the appropriate choice. Direct negotiation is suited in situations where there is only one supplier in the sourcing market with capabilities worth supporting the business objectives. Suppliers holding such positions normally wield immense power that they normally leverage to dictate just about everything about the deal. However, with creative negotiation, no supplier position is entirely formidable. It all depends on how the sourcing team approach the negotiation and what concessions can they offer in order to influence the supplier to “bend” to the desired position. In such a case and where the situation permits, the sourcing team can opt to directly engage with the supplier in a collaborative approach to negotiate a deal that will result in mutual benefits for both parties.
Outsourcing versus inhouse production is predicated on exhaustive Total Cost analysis which goes beyond the financials but also non financials like availability of technical capacity, volatility of the industry technology inter alia. Request for Proposal (RFP) yields best results where there is no one “iron clad” solution to the problem the business is trying to solve. Rather, the market has many suppliers with technical capacity to provide varied solutions. The nature of the business requirements is such that they can best be left entirely to the ingenuity of the supply market to determine an optimum solution through flexing their innovative muscles and propose a variety of solutions to the business problem and each solution is later evaluated on its own merit. In this case, the sourcing team must come up with a fool proof method of scoring the various aspects of the proposals like cost, quality, ease of implementation, capacity to implement the solution inter alia beforehand and all suppliers participating must know about this evaluation method through the Request for Proposal. This enables them to prepare water tight bids in terms of compliance to the business requirements. On the other hand, a Request for Quotation (RFQ) is a competitive method employed where the business requirements can be perfectly defined in a standard or generic manner to a sufficiently large and capable supply market. In this instance, the only differentiating factor to the bids submitted by the suppliers is price – quality and technical specifications are all standardized and no one supplier can claim superiority of their offer through any other criteria. The choice of one supplier over others is primarily influenced by the lowest price / bid submitted. A precaution must be taken when designing these documents to ensure clarity to the suppliers in a manner intended by the sourcing team. This ensures they submit proposals that will directly solve the problem. Moreover, how the business requirements and evaluation criteria are defined and spelt out in these documents is as important as the responses themselves. It ensures easy comparability of the bids whilst guaranteeing transparency and integrity of the entire process.
The implementation of the sourcing stage is the stage that marks the turning point in the Strategic Sourcing process. The results from this stage is what is going to put the business on the path of a new trajectory. Therefore, care must be taken to ensure the implementation process is pointing in the direction of business goals defined during the early stage of undertaking the strategic sourcing project.
Written by Emmanuel Nzombe (MCIPS, CIPP). He is writing in his own personal capacity. Drop your feedback to [email protected]
