Strategic sourcing

The most important process in Category Management

Jean-Louis Moreau
Business Consultant & Interim Executive

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 Strategic sourcing
Definition
• Strategic Sourcing is a structured and collaborative
approach to leveraging targeted spend across the
organization with select suppliers that are best suited to
create value from the external resources of the company.

• Strategic sourcing is the most important process in

Category Management.

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 Strategic sourcing
• Strategic Sourcing is supported by key enablers:
- Spend analysis; A window into strategic sourcing to spot opportunities
of value creation.
- X Teams (Cross-functional, cross-business, cross-geography, multi-
functional Sourcing Teams); the essence of strategic sourcing.
- Purchasing portfolio analysis (Including category positioning, Buyer-
Supplier relative power & relationships, constraints and risk analysis);
The foundation of category strategy formulation and deployment.

• A written sourcing plan should be elaborated along the process.

It will be used as the main communication vehicle with internal
stakeholders and to seek approval over proposed category
strategy. It will leave also an audit trail of key decisions.

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 Strategic sourcing
Ten Steps
1 - Organize Sourcing Team
2 - Profile Category
3 - Select Sourcing Strategy
4 - Identify Supplier Portfolio
5 - Select Sourcing Process
6 - Define short-list and implement strategy
7 - Negotiate and Award Contract
8 - Implement Contract
9 - Evaluate and develop supplier
10 - Improve sourcing process
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 Strategic sourcing
1 - Organize sourcing team
• Cross-functional cast our net wide
• Cross-BU s
• Cross-Geography Global
• Consider Implementation phase by including key
influencers.
• Requires active and visible Executive Sponsorship
• Operating rules to be clarified, especially around the
decision process.

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 Strategic sourcing
2 - Profile category
• Requirements Analysis Specifications
• Spend Analysis Multi-cube Portfolio Analysis techniques
(Buyer-Supplier relative Power, enhanced Kralgic Matrix,
ATK Chessboard).
• Strategic Positioning.
• Supply Market Analysis.
• Gap Analysis.
• Start to assemble a written Strategic Sourcing Plan.
• The most time-consuming of the whole process.
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 Strategic sourcing
3 - Select sourcing strategy
• Consider all options Strategy drives tool selection; Not
the other way around.
• Risk Assessment.
• ROI of selected strategies.
• Contingency plan if necessary.
• Methodology and/or Process to be followed.
• Communication to Stakeholders and Executives.

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 Strategic sourcing
4 - Identify supplier portfolio
• Market Research, RFI, Internet.
• Consider all viable suppliers.
• Do not discard any Supplier at this stage.
• Define unbiased criteria for Supplier selection.
• Strategic fit analysis.

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 Strategic sourcing
5 - Select sourcing process
• Decide the most appropriate execution strategy to select
short-listed suppliers.
• RFX, Direct negotiation, e-Auctions Consider all
Options.
• Define selection grid with criteria, measures and weights.
• Produce a written sourcing plan approved by Executive
Sponsor.

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 Strategic sourcing
6 - Define shortlist and implement strategy
• Deploy beforehand selected sourcing process, RFx etc
• Shortlist suppliers according to Pre-established criteria.
• Establish baseline.
• Implement previously defined strategy.

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 Strategic sourcing
7 - Negotiate and award contract
• Prepare negotiation team.
• Outline negotiation strategy to follow with suppliers.
• Set roles and objectives.
• Understand negotiating position: MDO, LAA, BATNA,
levers, possible concessions,
• Close negotiation with win-win sentiment on all parties.
• Award contract in writing, after being reviewed by Legal.

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 Strategic sourcing
8 - Implement contract
• Create transition plan and communicate to users.
• Involve supplier(s)
• Review processes and procedures.
• Review KPI s and SLA s with supplier s and stakeholders
• Initiate and maintain continuous improvement.
• Define reporting during transition and afterwards.
• Plan for emergencies Single point of contact.
• Plan and schedule contract reviews.

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 Strategic sourcing
9 - Evaluate and develop supplier
• Deploy a complete Supplier Relationship Enhancement
system.
• Follow-up performance metrics that have been agreed
upon Traffic light system Supplier Status Supply
Base Management New business allocation.
• Identify and launch supplier development projects.
• Monitor and communicate progresses to Sourcing team
and Executive Sponsors.

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 Strategic sourcing
10 - Improve sourcing process
• Conduct lessons learned workshops
• Plan for the next improved sourcing exercise.
• Apply Kaizen principles.
• Review written sourcing plan and adjust if necessary.

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 Written Sourcing Plan

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 Thank you
Questions?
Next steps

https://www.jlmconsultant.com

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 Strategic sourcing
Key success factors

Jean-Louis Moreau
Procurement Consultant Interim Executive

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 Key success factors
Speaking with one voice
• What should or should not be communicated
• When information should be communicated
• Who should communicate information
• Who information should be communicated to
• How information should be communicated

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 Key success factors
Global transformation plan
• Strategic Sourcing is most successful when art of a
company-wide coordinated transformation plan.
• Leadership dimension

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 Key success factors
Cross-functional talents
• Ad hoc team members borrowed from key departments
and locations.
• Assignment of high potential employees to a core team
lasting 2 3 years
• Avoid captive mindset b mi ing past and future
contributors.
• Keep an eye on the implementation phase.
• Prevent erosion over time by promoting continuous
improvement.

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 Key success factors
Stakeholder involvement
• Identify key stakeholders early in the sourcing process.
• Invite them to participate in the sourcing effort.
• Communicate regularly as the sourcing project proceeds.
• Ensure final role to sign off on the negotiated results.
• Report on value created for their business.

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 Key success factors
Total Cost of Ownership
• Price is only one of many factors.
• TCO measures all aspects of value, price and non price
factors and other value drivers.
• Understanding all elements of TCO is a strong prerequisite
for developing an appropriate category strategy.
• Total Life Cycle Cost (TLCC) is even better if understood
and approved by all stakeholders.

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 Key success factors
Written Sourcing Plan
• If it is not written, it does not exist.
• Most valuable tool to communicate category strategy to
stakeholders and Management.
• Can be adapted to changing environment overtime.
• Provides an audit trail of key decisions.

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 Thank you
Questions?
Next steps

https://www.jlmconsultant.com

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