Strategic Sourcing – Assess for Improvement Opportunities
Once you are organized for success (see previous blog), the next step is to dig in and find as many opportunities for improvement as you can. In order to develop a portfolio of opportunities, you must evaluate the data available to determine what improvements can be made. In our Roadmap, you can follow these steps:
Design/format and gather information and data
The first step is to gather data on what you are buying. The best way to start is to organize your purchases into commodities, grouping materials you can typically source from one supplier. An example might be:
Once your commodities are established, create reports that show who you are buying the materials from grouped by sub-commodities. Include useful data such as quantities bought and pricing. Then identify how suppliers are performing within the commodities. If you don’t have supplier performance data do a qualitative survey of the suppliers for each function (e.g. Purchasing, Manufacturing, Quality, Service and Finance). Include a way for everyone to communicate what is expected of the suppliers and what needs to improve. If it makes sense for your company, form cross-functional commodity teams to collectively do this work.
Analyze and prioritize your opportunities
- Analysis of what you have gathered will lead to many questions. For example:
- Why do I have 8 suppliers for hardware?
- Why am I buying so much from a supplier nobody wants to work with?
- Why do I have so many suppliers I am buying 1 or 2 items from?
- Why is the quality so poor from some of the suppliers?
- Discuss and identify a list of opportunities for improving your sourcing. These won’t be detailed action plans at this point. Prioritize the opportunities, placing emphasis on possible cost improvements, quality improvements and delivery/assured source of supply improvements.
Identify and implement quick hits
Some of the opportunities may represent easy, no-brainer work you can do right away, such as consolidating to reduce suppliers where it is very easy to do. This will increase the volume and allow you to negotiate better pricing.
The idea is to get some early wins, taking action by driving a portfolio of quick-hit opportunities that will deliver the necessary momentum to get your Strategic Sourcing program off to a great start. Now you have:
- A capable organization
- Goals and metrics
- Prioritized opportunities
Our next step will be to explore how to develop strategies and plans, implement the plans and how to establish a habit of continuous improvement. We will continue to detail our Roadmap in our next blog with a focus on Delivering Results.