In a former post, I’ve described – briefly but good enough I hope – how to scope the purchases to include in a Strategic Sourcing program. This was the Part I/IV of the Strategic Sourcing Opportunity Analysis methodology (SSOA) I wanted to share online.
Let me now bring you to the second step, starting once you have sorted out your spending into SGs (Sourcing Groups).
Purpose, in this phase, is to identify the most probable best sourcing strategy and tactics (approaches) for each SG, based on its position in a “Business-impact / Market complexity matrix”.
This work is completed by executing the following 4 actions that you should – of course – conducted in a collaborative way with the key-stakeholders in your company… if you want to succeed the implementation…
- 1 – Determining SG’s business impact by answering the 5 questions below:
- Is the SG’s total value (€) is important in your company’s total spending?
- Do customers perceive that the SG product(s) adds significant value?
- Does the SG differentiate the end product in an important way?
- Does the Sourcing Group provide access to leading offerings?
- Would a SGs failure affect your customer’s satisfaction?
- 2 – Determining SG’s supply market complexity, primarely depending on competition amongst suppliers, by answering the 5 questions below:
- How is the Market Internal Competition (high=low complexity)?
- Can you easely switch to another-non-identical product (substitute)?
- How is your buying power (high = high % of total market)
- How is the bargaining power of sellers (high = monopolistic or closed market?)
- Can new entrants be easely found and invited to tender (pre-qualification / switching costs)?
I would recommend to create an excel template to review all your SGs and assess those 2 dimensions for each of them (Business impact and Market complexity).
- 3 – Positioning all of your SGs in one of the quadrant of the “Business-impact / Market complexity matrix” as below.
- 4 – Identifying the best and most sensible strategy to apply to each sourcing group
The Market complexity is the key-factor driving your strategy. There are 2 possibilities. If you consider the SGs in the half-left-side of the matrix, those are the ones where you have to exploit your buying power. For the half-right-side SGs, you shall create a business advantage, from a strong relationship with your suppliers or partners for example.
Within each of the 2 sourcing strategies, the business impact related to each SG is determining the best tactic to apply. There are 6 basic tactical levers to use as represented below.
The 3 approaches on the half-left of the graph above are the most suitable within a “exploit your buying power” strategy while the 3 on the half-right-side are most suitable for the “create a business advantage” strategy.
Finally, the table below gives you an indicative value – suitability – of each of the 6 approaches with regards to the 4 basic categories of purchasing: Considering a SG for which you have a strong position, the levers 1-2-3 are most relevant. On the other side, considering a SG for which you have a weak position, the levers 4-5-6 are most appropriate to apply.
This should be enough for you to define the right sourcing strategy and tactics to apply to your SGs. Applying this methodology to each of your key SG will enable you to save cash, reduce costs and improve your process/product/service quality.
Next part – Part III/IV of the SSOA – will be to define priorities, estimating the potential savings by SG and difficulties to deploy tactics. In a next post… coming soon.