How to scope purchases | SSOA Part I/IV

Using e-Tools or making savings on its Purchases shall always start by a Strategic Sourcing Opportunity Assessment (SSOA) so to identify right priorities at start and spend rigth effort on right Sourcing Groups. Here is a basic 4-step-methodology that might help you to get started.

In this post, I will just explain the first step.

Howto Define the Scope of purchases to include in your Strategic Sourcing program

• stage 1) Outline your company business structure
• stage 2) Understand the importance of purchased goods and services to end-product costs and revenues
• stage 3) Understand the importance of purchased goods in each BU
• stage 4) Identify purchases by category (profile Sourcing Groups)
  • Below is a basic example on how to split the Sourcing Groups in 4 categories:
    • Category 1: Standard – in general low-value indirect spending and non critical services
    • Category 2: Leverage – in general high spending commodities as regular direct materials,
    • Category 3: Strategic – in general high spending administrative, Operating and Technical Services
    • Category 4: Bottleneck – in general one-shot buying as capital expenditure, investments

Here (TBD) is a template that might be helpful to identify more precisely in which category lie your Sourcing Groups.

• stage 5) Define Sourcing Groups using a 3 level family tree (at least)
  • Example of Levels: Sourcing family / Category / Sourcing group / Country or BU
  • Gather purchased items from the same category that can be provided from the same set of suppliers and with a similar approach,
  • Tipically you should have 50 to 60 Sourcing Families,
  • Creating SGs facilitates the sourcing strategy definition and the prioritisation,
  • Here is an .xls example of a Strategic Sourcing tree

• stage 6) Identify and select the initial scope for the strategic sourcing program.
  • Selecting the first 3-10 Sourcing Families to work on.

By going through those 6 stages, you’ll have a good idea of your (the) company purchases and of their importance on the company bottom line, enabling you to select the first Sourcing families to put your efforts on.

Next 3 steps will be detailed in coming posts:

SSOA Part II/IV | How to determine Sourcing Strategies and tactics

SSOA Part III/IV | How to prioritize Sourcing groups (saving potentials and implementation easiness)

SSOA Part IV/IV | How to plan a Strategic Sourcing program