Question n°1

Strategic Sourcing Process 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.

The Strategic Sourcing Process comprises of the following Seven Steps:

1. Profile the Category 2. Develop Category Sourcing Strategy 3. Generate Supplier Profile 4. Choose
Competitive Selection or Supplier Development 5. Select Competitive Su pplier(s) and Negotiate 6.
Implement 7. Continuous Improvement

The objective of this step is to understand and develop a category profile. The starting point is to
speak to internal users to understand their requirements and specifications.

From there the sourcing category is defined based on their category characteristics including what
the category includes and what it does not. An example for Federal Delivery would be Fleet Vehicle
Maintenance for its delivery fleet vehicles. What would be included in this category would be vehicle
related maintenance costs such as repair depots, mechanic labour and parts. What would not be in
this category is fuel costs that would be a category on its own.

Spend analysis is then performed in relation to which suppliers are currently being used, which new
suppliers may be considered and industry dynamics these suppliers belong to. Technology driven
solutions to help make these suppliers more effective and efficient is also considered for example,
scheduling fleet vehicle maintenance via an online system that analyses and predicts the most
optimum and cost-efficient time to schedule the vehicle for servicing.

Step 2: Develop Category Sourcing Strategy

From the Category Profile in Step 1, the next step is to develop the category sourcing strategy by:

1. Understanding the buying power and category criticality to the position of the sourcing category

2. Determine the sourcing approach to maximise the savings or value of the opportunity

The categories profiles are mapped according to their complexity/risk types to their value potential in
the Kraljic Portfolio Matrix (aka Portfolio Analysis). These categories profiles will ultimately be
classified to one of the following:

• Strategic • Leverage • Bottleneck • Non-Critical

The 5-forces methodology approach (developed by Michael Porter) is then used to analyse Federal
Delivery's profile category position in relation the Supplier Market and their competition. This will
help with better understanding the suppliers, their competitors (as potential new suppliers),
substitutes and relative bargaining power by suppliers and buyers.

The combination of going through both Portfolio Analysis and 5-forces methodology will help
determine the sourcing strategy for example leveraging on Competitive Bidding or Closed tenders etc.

Step 3: Generate Supplier Profile

In this step, existing and potentials suppliers are identified. Additional information can be gathered
via supplier research and issuing a Request for Information (RFI). Information gathered includes but
not limited to:
• Cost Structure • Financial Status • Core capabilities • Customer Satisfaction levels • Strategy/Future
direction • Culture • Support capabilities • Strengths and Weaknesses • Buyers' Fit with Supplier

Based on the information gathered, a SWOT Analysis is performed to understand these suppliers.

Other activities generated from Step 3 includes:

a. Establishing supplier minimum requirements

b. Establishing supplier selection criteria

c. Developing a quantitative supplier evaluation system

Based on the evaluation system scoring of suppliers, a preliminary shortlist of suppliers is generated
to proceed to the next step.

Step 4: Choose Competitive Selection or Supplier Development

At this step, the strategy on how to go forward is determined including:

• To use competitive bidding or negotiations or both • RFX, Direct negotiation, e-Auctions • Which
suppliers to invite for next steps.

Step 5: Select Competitive Supplier(s) and Negotiate

In this step, a negotiation plan is identified, the RFX is developed and distributed. Received proposals
are evaluated, suppliers selected for negotiations are identified. Final negotiations are held, and the
final successful supplier is confirmed.

Step 6: Implement

At this step, contracts and implementation plans are developed and executed. Cost savings and value
generated are tracked and reported out.

Step 7: Continuous Improvement

In this final step, the awarded supplier's performance is monitored by their Performance reports,
Supplier rating system and audit/compliance reviews. The supplier relation is managed/governed
based on these reports and rating system.

Question n°2

The 2x2 appproach is part of Step 2: Develop Category Sourcing Strategy.

The categories profiles are mapped according to their complexity/risk types to their value potential in
the Kraljic Portfolio Matrix (aka Portfolio Analysis). These categories profiles will ultimately be
classified to one of the following:

a) Strategic

• Critical to product's cost/price and operations • Few qualified sources of supple • Significant spend
• Customer design and/or unique specifications • Dependence on supplier

b) Leverage • Standard or commodity type • Substitute products available • Competitive supply

market • Unique cost management important

c) Bottleneck
• Complex specifications

• Few qualified sources of supply; monopolistic market

• New technology

• High impact on productions/logistics

ci) Non-Critical

• Standard or commodity type

• Low value, everyday use

• Substitute products available

• Competitive supply market

Question n°3

Question n°4

The key to making this a success for Ellen and the Strategic Sourcing team of Federal Express is to
ensure Strategic Sourcing :

1. It involves and engages a cross functional teams of buyers and users from the organisation
across geographical and disciplines throughout the process.
2. has an active and visible Executive Sponsorship with a proper governance structure in place
both a Senior and working levels.
3. Is a well written sourcing plan is in place, well communicated and understand by all
stakeholders including what roles and expectations everyone plays throughout the process.
 The plan will also include Operating rules to be clarified, especially around the decision-
making process.

It is recommended that Ellen formalises the new strategy and process by first calling for a Senior
Management meeting to present this new direction and its benefits to obtain buy-in.

Once buy-in has been achieved, formal roll-out of this new process is done beginning by company
wide memo annoucement and subsequent trainings to the organisation. Post trainings, the new
process adoption is monitored and evaluated for improvements and revisions to the strategy.

Constant communications of how the process is being adopted and benefits achieved is key as
part of change-management and the success to the new process.