7-step supplier sourcing process

Published : 6/08/2022

In today’s competitive business arena, many professionals are continuously seeking ways to not only optimize cost but also assure the delivery of the highest quality of products and services. To achieve this requires a lot of effort in constantly improving and re-evaluating the purchasing activities of a company/business, which is also known as Strategic Sourcing.

What is Strategic Sourcing?
Strategic sourcing is nothing but a purchasing process that generates orders across all enterprises/businesses within the outsourcing cycle to seal the best price for a particular product or service. The main benefits of strategic sourcing are not only to decrease money-spending, and increase investment procedures but also to get good trading performance.

In this blog, we introduce one of the best practices used by many procurement professionals. No matter the purchasing size, the 7-step strategic sourcing practice, originally developed by A.T. Kearney, has been tested and proven effective for sourcing products and services. The final results could be cost-saving, greater value-added and time saved.

Step 1: Profile the Category
The first step is to identify the sourcing category or commodity, this mainly includes the volumes (quantity, types and sizes) spent on products and services, current prices of suppliers, and specification details. Also, don’t miss out to analyze your users, i.e. you must know who they are, where they are located – and the departments they are involved in the supply chain.

Step 2: Supply Market Assessment
Understand your buying power and supplier categories critically to position the sourcing strategy by performing market analysis. Then, you determine what strategy approach fits best with the type of service you’re sourcing.

Kraljic’s Matrix is considered as one of the most effective ways to segment your supplier base. This two-by-two matrix is mapped against two key dimensions: Risk and Profitability. Risk demonstrates the likelihood of unforeseen events occurring that may disrupt the operations. Profitability describes the possibility of impacting the bottom line of the organization.

Once you identify the segmentation of a product or service you're looking for, you’ll have a clear vision of how the product or service impacts the overall business, and then be more confident about what strategy and partner relationship you should implement.

Step 3: Develop a Strategic Sourcing Strategy
This is a very critical step. This step will be guidance on where and how to minimize the risk factors and spending while purchasing goods and services. First of all, define your business goals and minimize requirements for the dealers and then formulate the selection criteria that are most appropriate for your requirements, capabilities and resources. A multi-disciplinary team is highly endorsed by critical collaborators.

Step 4: Select the Sourcing Strategy
Time to send a formal written invitation with specifications!

Request for Proposal (RFP), is the most habitual approach accustomed to many businesses. A formal yet detailed document that puts forward the project through a bidding procedure, in acquiring a product or service from traders for their project and that is given in writing by the firm is called RFP. The document layouts all the details required for the project, like, specifications, price segmentation, legal and financial clauses, etc.

Step 5: Negotiate with and Select Suppliers
Once dealers acknowledge your RFP, you need to finalize the dealers and interview them and ask all the necessary questions which will help you to decide upon a particular dealer. To select the dealers the main task is to appoint a professional and knowledgeable Tender Evaluation team who can ask appropriate questions to the interviewee regarding the products and the services.

Step 6: Implementation and Integration Strategic sourcing is incomplete without communication. It is a very critical part. You should communicate to the successful dealers and initiate a strategy that can lead to a strong partnership which will be beneficial for the company if more complex products are to be managed. Incorporating the dealer in all the meetings and keeping them notified about all the new products and services is essential for the upliftment of the company/business.

Step 7: Benchmarking
This is the final and the most critical step which is ignored by most buyers in many cases. It is essential to monitor the results and certify that the goals are been met. This step will help you to identify any problem during the process and solve it to impact the business operations least.

Summing up:
In today’s fast-paced world, all organizations need strategic sourcing to stay competitive and relevant to the market and deliver the most significant benefits for the organization. Additionally, there is a specific procurement procedure followed in the tendering business. Thus, by sincerely adhering to all the seven steps mentioned above, you can improve your products and services and boost your company's business to gain a competitive advantage. It's a relatively new approach that assures substantial growth in your business.