How to prioritize SGs | SSOA Part III/IV

Last time, I’ve explained in the post SSOA Part II/IV how to define which strategy and tactic to apply per SG. The third and next step is to define priorities. Which SG shall you start with, knowing you will launch consecutive ‘strategic sourcing waves’ limited to the resources you can mobilize?

Basically, priorities depend on 2 key parameters:

  • The potential savings | the more, the first,
  • The easiness of implementation | the easiest, the first

Reminding you are currently in the ‘Opportunity Analysis phase’, you don’t need to be precise and shall, quick-but-good-enough, estimate those 2 parameters for each of your SG.

For the first parameter, get back to the levers/tactics (from the 6 defined formerly) you have identified as the most promissing for each SG and estimate the potential savings by going one step further, i.e. by defining the action(s) you would execute to implement the lever(s) and then how much savings you can foresee from each of those actions.

Below are listed the most successful actions related to the 6 possible strategic sourcing tactics:

Actions related to Tactic 1 – Consolidating spendings

  • Reducing the number of suppliers
  • Aggregating the spending and volumes across business units
  • Aggregating the spending and volumes from different SGs
  • Standardizing products

Actions related to Tactic 2 – Optimizing price and volume

  • Reducing maverick spends
  • Using reverse auction or dutch auction to negotiate prices/services
  • Extending your contract terms
  • Analysing the volume requirement root-causes
  • Benchmarking internal prices

Actions related to Tactic 3 – Finding new entrant(s)

  • Exploring LCC
  • Finding and inviting new suppliers
  • Using directly second-tier suppliers

Actions related to Tactic 4 – Optimizing product specifications

  • Standardizing material/parts
  • Using substitute
  • Running a design to cost approach
  • Using functional buying reducing technical specs
  • Optimizing life-cycle product management
  • Extending your contracts terms

Actions related to Tactic 5 – Improving TCO/Process

  • Redesigning processes with new solutions
  • Reducing work-in-process inventories
  • Optimizing production planning
  • Reducing administrative transaction costs

Actions related to Tactic 6 – Restructuring relationship

  • Choosing BPO for non-core competencies
  • Choosing make versus buy
  • Deploying joint-sales to increase go-to-market efficiency
  • Co-developing new product/processes with strategic suppliers

With regards to evaluating the easiness of implementation, here are the critical risks to assess:

Easiness of implementation evaluation 

  • The supply market complexity
  • The expertise needed to conduct the required changes
  • The necessary time and effort needed
  • The accessibility of the information needed
  • The diversity of the stakeholders to be involved
  • The ability of your company to handle change management
  • The numbers and geographic scope of Business Units to be involved

Now, to complete the prioritisation of your SGs, I suggest to use EXCEL or similar and to create a table with SGs in column and weighted actions + risks in line. There you are.

Next and last step SSOA IV/IV will be to plan your Strategic Sourcing program.

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