8 Important Activities Before Launching a Strategic Sourcing Market Test

Strategic sourcing is a great tool for delivering savings when there are many suppliers and consolidation makes sense. The goal of strategic sourcing is to transform the supply base for a category or commodity to better align with organization needs and expectations.

Done, right, strategic sourcing can deliver: 

• An optimized supply base, with suppliers selected that align with the company’s business objectives and category/commodity strategy 
• Lower total costs and improved value 
• Improved supply continuity  

In our experience, strategic sourcing projects can be completed in 6 months, with some savings achieved at the 6-month mark but most implemented over the following year (resourcing has many steps). 

Projects often identify a 15-20% TCO savings opportunity, although sometimes savings are lower if improving supply continuity or value-added services are prioritized. 

Successful strategic sourcing initiatives start with eight important activities prior to market testing. 

1. Develop a Project Charter

A widely share document that communicates the mission, objective, deliverables, scope, and roles/responsibilities for the initiative.    

• Target 3-5 objectives and 5-7 deliverables 
• Clearly state what is as well as is not in the scope 
• Key roles include an executive sponsor, team leader, core team, and stakeholders 

2. Review Supplier Agreements

Collect all existing supplier agreements and summarize any commitments or constraints. 

3. Review the Category/Commodity and Supply Base

Summarize a few simple things like the number of suppliers, spend per supplier, and current performance of the supply base across quality, delivery, and development support.  Complete this for the current state, then establish a shared vision for the future state. 

4. Clean and Segment Spend Data

Transform data from ERP systems into actionable spend data.  Because extensive cleaning and categorizing is often needed, you’ll probably want to focus on the top 80% of repeat spend items to (1) ensure consistent part and supplier names and (2) assign or clean up sub-category tags. 

The goal is to have spend data that you can summarize the spend distribution by: 

• Part 
• Sub-commodity 
• Facility or division 
• Supplier 

5. Interview Stakeholders

Identify the different types of stakeholders – those that use the suppliers, interact with suppliers, and anyone who’s objectives are affected by spend or supplier performance. 

Identify representatives at each plant for each role, then conduct short interviews asking: 

• What they rely on from current suppliers 
• Pain points with current suppliers 
• Any improvements they’d like to see 

6. Develop an Ideal Supplier Profile

Identify important attributes that you want in a supplier.  These typically number 15-20 and include areas such as services offered, location, industry experience, etc. 

For each attribute, identify: 

• What is the best case for a supplier (the “ideal”) 
• What is the minimal acceptable level? 

7. Complete a Supply Market Assessment

As a team, summarize the important aspects to know about category or commodity you are targeting.  In some cases, it makes sense to hire an outside expert for their deep knowledge of the segment. 

Document things like: 

• Manufacturing steps 
• Supplier types and tiers 
• Typical supplier cost structure 
• Common industry practices 
• Current trends 
• Major suppliers & strengths 

8. Develop Category/Commodity Objectives

Reach out to company leadership and functional leaders for sales, engineering, operations, etc. to understand their go-forward strategies that impact purchasing and suppliers.  For each group, make sure there is a corresponding purchasing strategy that supports their strategies impacting purchasing and suppliers. 

Finally, develop category/commodity objectives that align with the purchasing strategies. 

In Summary..

These important activities are the first phase of a strategic sourcing initiative.  They take time to complete, but a thorough job will ensure that your strategic sourcing initiative is set up for a successful market test. 

Check out APD’s Strategic Sourcing 101 short course for valuable lesson son planning a successful strategic sourcing initiative, including 6 key components to prepare for a market test. 

Interested in more savings-related topics? APD has a whole section dedicated to resources and services for Strategic Cost Reductions