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Strategic sourcing and 7 Step Strategic Sourcing Framework
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- 3. Procurement Life Cycle- PPRA Planning Requestin g offers Evaluation Awardin g Contract s Managing Contracts Annual Procurement Planning Requisitions, Describing Requirements And Selecting A Procurement Method Identifying Suppliers And Preparing Bidding Documents Managing The Bidding Process Evaluating Offers Awarding Contracts Administering Contracts
- 4. Terms & Definition Purchasing Transactional function of buying products / services Procurement Sourcing products and services required from point of supply to the point of demand Strategic Sourcing It focuses on impact of procurement decisions on the organization's overall business strategy. It works cross-functionally to achieve firms' strategic goals. 4
- 5. 5 What is StrategicSourcing It is a Collaborative and Organized approach to spend categories with objective of selecting suppliers best suited to provide maximum strategic value.
- 6. Transition (As-Is ~To-Be) 6 Integration Procurement viewed as key contributor to business strategy Value Optomisation Procurement strategy tied to business strategy Value Value Innovation Sustainability Supplier Alliances Purchasing Procurement INFORMAL - Focus on purchase orders - Detailed reconciliati on - ‘Back Office’ function CONTROL Procurement has some accountabili ty for overall cost reduction Strategic1 Strategic2 Strategic3 As-Is To-Be
- 7. 7 Step StrategicSourcing Framework
- 8. 1. Develop CategoryProfile 2. Develop Sourcing Strategy 3. Generate Supplier Portfolio 4. Select Implementation plan 5. Negotiate & Select Suppliers 6. Implement Agreements 7. Continuous Improvement
- 9. Spending Analysis Supply Market Analysis Needs Analysis- Interview key users & find out Their needs for the product, Their view of the supplier’s performance Any enhancements that they would like to see in the product What content do you absolutely need to satisfy the present and future requirements of your users? 1. Develop Category Profile
- 10. 1. Develop CategoryProfile
- 11. 2. Develop SourcingStrategy Leverage Use competitive marketplace to reduce cost Consolidate Volume as a negotiation tool Strategic Ensure availability of supply Focus on relationship building Process integration and innovation Non- Critical Simplify and streamline purchasing process Reduce No of suppliers and simplify ordering Bottleneck Search for alternatives Strengthen relationships Category Positioning Matrix
- 12. 12 Strategic, impacts core business Non- strategic, easily replaceable Easy to manage, simplistic Highmaintenance, emotional, complex ALLIANCE MGT Our focus is most likely here Routine SRM Routine Procurement Routine SRM
- 13. 13 Establish Key SupplierAlliances Terminology: Alliance Management vs. Supplier Relationship Management SRM suggest “one way” communication Alliance Management more appropriate term: “Two Way Communication Objectives of an Alliance Management Team: 1. Provides a mechanism to ensure relationship stays healthy 2. Creates the needed platform for problem resolution 3. Forum for developing continuous improvement goals for future 4. Ensure that Performance Measurement objectives are achieved
- 14. Widening ofsupplier base Look beyond incumbents & their competition Develop criteria for supplier selection 3. Generate Supplier Portfolio
- 15. Early SupplierInvolvement Request for Quotation – RFQ E Procurement – Reverse Auctioning 4. Select Implementation plan
- 16. Negotiation Team(For highvalue categories) Senior person Technical Expert Procurement Specialist 5.1 Negotiate & Select Suppliers
- 17. Negotiation Strategies Least acceptableagreement (LAA) It is the minimum needed before walking away Most desired outcome (MDO) It is the result we want and can defend. Best alternative to a negotiated agreement (BATNA) It is the best alternative, if the negotiations fail. 5.2 Negotiate & Select Suppliers
- 18. Preparing thecontract Raising the PO Blanket or Running Running contract means contract for the supply of an approximate quantity of items at a specified price during a certain period. System Contracting System Contracting involves the development of a corporate agreement with a supplier to purchase a large quantity of items or raw materials on a continuous basis. These contracts can range from one to five years in length Purchase Card (P Card) Purchase Card is a form of company charge card that allows goods and services to be procured without using a traditional purchasing process. 6. Implement Agreements
- 19. Supplier PerformanceManagement Value analysis Progressive accurate Budgeting Target Costing Benchmarking with competitors 7. Continuous Improvement
- 20. 20 Manage Total Costof Ownership THIS IS ABOUT: Instill Total Cost of Ownership / Total System Cost Mindset Move away from looking at just lowest price More focus on best value Move towards process improvement as a measurable internal goal Evaluation of all factors that make up the cost of goods and services
- 21. 21 A = AcquisitionCost (25-40%) O = Operating Costs T = Training Costs M = Maintenance Costs W = Warehousing Costs E = Environmental Costs S = Salvage Value 60-75% Total Cost of Ownership = A + (O+T+M+W+E) Less S Source: The Executive Guide to Supply Chain Management, David Riggs/Sharon Robbins
- 22. 22 Purchase Cost Life Cycle Costs SpecificationsStandardization Inventory Practices Operational Practices Disposal/Salvage Costs Perceived Opportunity Actual Opportunity Total Cost Approach Environmental Costs Warehousing Costs Maintenance Costs Quality Costs Procurement Practices Warranty Terms Freight
- 23. 23 Buyer Cost Interaction Cost Profit SupplierCost Buyer Cost Interaction Cost Profit Supplier Cost Traditional Focus (price only) Strategic Focus Total System Cost Savings Traditional Strategic Total Cost of Ownership
- 24. Summary Define metricsto measure and monitor Progress Ensure on-going supplier certification and evaluation Benchmark & using proven implementation methodologies for sourcing & eProcurement Re-engineer process and remove waste (utilise Lean / 6 Sigma concepts) Develop selection criteria to appoint strategic suppliers (Leichardt scale) 24
- 25. Summary(Contd.) Automate areasto eliminate re-entry / re-work / duplication Review inventory policies for cycle-times & inventory levels reduction Manage supplier relationships to support priority or time- critical purchases Undertake comprehensive analysis and research, to understand procurement price, costing and the total cost of ownership (TCO) Consolidated details of actual spend with each supplier and product category Select a Solution Vendor based on - organizational / industry fit, expertise, product strategy, history of success, interview consultants for their competencies / capabilities 25
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Editor's Notes
- #22 Price is only one element of the total, life-cycle cost of acquiring products and services. A sourcing effort that addresses price only misses a much, much greater opportunity to reduce internal design and process costs. A rule of thumb is that once you have told a supplier what it is you want to buy and what it must look like, you have already built in 80% of the purchase cost. By understanding and managing demand drivers and how specifications are developed to meet them, a client can often double or triple the savings. Inventory is another area where you can drive out cost by asking suppliers to manage stock or migrating to just-in-time deliveries. You will find other savings opportunities in every aspect of the internal supply chain.