An Insight into the Seven Stages of Sourcing Strategy
Strategic sourcing is a very broad and comprehensive term, especially when compared to procurement. It begins with the design and development of a pertinent paradigm that can provide direction to all organizational efforts. Very often, an enterprise’s strategic sourcing plan is inspired by its value discipline and is guided by a core criteria that can lead to success in the target market.
Here is an insight into the seven stage methodology that specifies the strategic sourcing process.
Form a procurement team to analyze the sourcing requirement
After collating requirements from different teams, the procurement team must analyze the requirements and estimated budget. Typically, procurement teams use spend analysis tools that can automate spend data classification.
Identify supplier/suppliers who meet the requirement
The procurement team analyses, plans and take steps to find new suppliers who can fulfill the requirements. They must have a good understanding of the competition in the market. If the team has contacts with suitable suppliers who can fulfill the requirements, then the sourcing process may directly lead to the RFP stage. On the contrary, if the procurement team desires to find new suppliers, the process moves to RFI where suppliers are invited to participate.
Developing the sourcing strategy
The supplier portfolio screening process is a key aspect of the sourcing strategy. This stage includes supplier research and screening, development of an RFI (Request for Information) or RFP (Request for Proposal), depending on the procurement requirement. This stage includes site visits, follow-up discussions and supplier selection.
Sourcing strategy – Execution
This stage effectually starts after the RFI and RFP process is complete and a supplier has been awarded with the project. At this stage, there should be clarity on the level of collaboration and relationship. It should be clear whether the relationship is going to be a routine partnership or a strategic alliance.
Integration and implementation of the contractual agreement
In this stage, the contractual agreement is finalized and the transition process is planned. It comprises of the implementation of a benchmarking system. This stage should ideally aim to determine the process efficiencies and savings that can be generated through the contract agreement.
Supplier Performance Management
The measurement, management and improvement process is an integral part of any sourcing strategy. This stage intends to review service effectiveness. Factors such as delivery frequency, reliability, stock levels, order cycles and lead time variability are considered to reach a consensus on the expected performance.
Record and Relationship Management
This is the final stage of the sourcing strategy. This stage involves updating records and the scorecards of suppliers.
These steps are a standard seven-step strategic sourcing methodology that is employed by many organisations to improve the overall effectiveness of their supply networks.