4
Figure 44: SOURCING MANAGEMENT PROCESS
7
1
Implement product / service agreement
Confirm business requirement
Negotiate, sourcing decision and execute
2
6
Mobilize initiative
Strategic Sourcing
Investigate business requirement
Test the supply market
Develop sourcing strategy
3
5
4
Sourcing professionals often have a tendency to skip the first few steps of the sourcing process and go straight to either negotiating with an existing supplier or publishing an RFP (steps 5 and 6 of Figure 44). We think that sourcing decisions should not be made based on price, but on the Total Cost of Ownership (TCO). In our experience, cost savings are often hidden in those first steps of the sourcing process where research is focused internally, internal demand is challenged and the category strategy is designed. This is not to say that a fast-tracked sourcing process should not be applied in the case of low-value, low-risk requirements or where there is a genuine time pressure to conclude a supplier agreement. What steps are included in the sourcing processes of the organisations in our sample? Well, 90.8% of the respondents said that market and supplier research is an activity within their standard sourcing process, followed by negotiation with incumbent suppliers (87.4%) and information gathering from users (67.8%).
Figure 45: WHICH OF THE FOLLOWING ACTIVITIES ARE TYPICALLY INCLUDED IN THE SOURCING PROCESS?
Conduct external research on the market and suppliers Negotiate with existing supplier(s) Gather information from internal users Set a formal cost-saving target Conduct internal research on requirements and specifications Decide on potential use of a RFI, RFQ prior to RFP Set up a cross-functional team Conduct a detailed spend analysis
90.8%
87.4%
67.8%
54%
42.5%
39.1%
37.9%
35.6%
Decide on potential use of eSourcing
27.6%
0
10%
20% 30%
40%
50%
60%
70%
80%
90%
100%
We regard the role of procurement as a facilitator that brings together stakeholders from different departments (often with different and conflicting objectives). Sourcing projects that really matter to an organisation require joint efforts from a diverse team of stakeholders who bring their considerations in formulating the sourcing decision. Typical stakeholders that are represented in these cross-functional teams are procurement, legal, risk, operations and finance. However, this cross-functional dynamic appears to be missing from almost two- thirds (62.1%) of the organisations in our sample.
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