While traditionally the goal of sourcing has been to identify and award a supplier that best meets the business requirements and is the most cost effective, in 2020, the game changed dramatically. As companies have had to navigate unprecedented supply and demand chain challenges, they’ve had to quickly revamp their supply chains to meet the needs of today and for the next six months.
The need to make sourcing more strategic and responsive to the organization’s needs has never been more vital. As organizations retool their supply chains for 2021, they have an opportunity to revisit their sourcing to put in place the structure and organization to drive the best outcomes, by following these five key steps for strategic sourcing success.
Evaluate, collect data and build a strategy. The first step starts with embarking on a disciplined and organized evaluation of your sourcing needs. This consists of the following processes:
Determine the right engagement model. A key element of developing your strategy lies in selecting appropriate sourcing events, such as an eAuction or a detailed RFQ. Both offer advantages but the various considerations should be weighed carefully to determine the right approach for your business.
Next, you’ll need to send out requests for proposals (RFPs) to inform selected suppliers of the initiation of a sourcing process. You’ll likely have to deal with multiple inquiries from prospective suppliers, so be sure to explain exactly what you want from them. You’ll then receive responses from suppliers detailing proposals for evaluation.
Make a shortlist of suppliers to take them through to the next phase of negotiations, where you’ll run your Sourcing activity. Make sure you have the following:
Research and award your supplier. In researching suppliers for potential awards, be sure to evaluate the following:
After reviewing all of the above, if a clear winner is not apparent, you may consider reopening the RFP process to a small selection of suppliers to encourage them to improve their offers. If you’ve run an RFX sourcing event and it’s appropriate, you could consider running an eAuction against the final few suppliers, to get a better deal.
Once selected, you should notify the supplier and internal stakeholders via a "Commitment Go Document," stating the following:
Contract implementation. You’ll need to work with your new supplier to devise a communication plan to implement the new goods you’ve selected for your business. The potential risks of the relationship should be identified and then mitigated with sufficient compliance measures. These arrangements are then formalized through a signed contract. In the past, this was an enormously time-consuming process that involved preparing reams of paperwork, but today technology can auto-generate contracts based on pre-prepared information plugged into the system beforehand and from the RFP previously submitted to ensure supplier information accuracy .
Key Performance Indicators and objectives should be set and tracked to hold suppliers to account. Finally, you’re ready to transfer the ownership of the supplier to the right people in your organization, with agreed upon checkpoints in place for service level delivery and performance against the agreed upon service levels and KPIs.
Invoice set up and monitoring. Once the supplier is onboarded an invoicing process must be set up. Any new supplier agreement creates the opportunity to make the case for invoice automation, especially if the new contract generates high invoice volumes.
Ongoing monitoring and tracking of supplier performance should include:
Finally, you should track the value of the savings you’ve made with the new supplier to report to the wider business how this cost-saving measures enabled by procurement have benefitted the bottom line.
Buying for a business is a complex process, even at the best of times. Ensuring a sound process is firmly in place will enable your organization to deftly navigate market shifts, supply shortages and evolving needs on an ongoing basis.
Shannon Kreps is vice president of product marketing at Medius, a global supplier of cloud-based source-to-pay software.
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