Seasoned sourcing pros know that there is often much more to awarding a contract than price. And yet, they often hear from business stakeholders that competitive sourcing is not the right strategy for their particular category saying “this category is far too specialized and there are too many non-price factors that must be considered in awarding the final contract. Sourcing just does not make sense here.” The reality is the exact opposite. A mature sourcing organization should be ready and able to incorporate non-price decision factors into the final evaluation and award of a supplier contract. They should also be able to weight price and non-price factors into a single evaluation. While this could be difficult in an offline sourcing process, the advances in eSourcing technologies over the past five years have made it much easier to incorporate varied and complex award criteria into a streamlined and automated sourcing process.
Those business stakeholders who offer excuses like the ones above are playing into the hands of the savvy and sophisticated sourcing teams who are prepared to run sourcing projects that incorporate non-price factors into the decision making process. After all, sourcing is not about identifying the lowest price; sourcing is about identifying the greatest value. Thus, today’s article is a discussion of three of the most frequently used non-price attributes and how their use can help sourcing teams find the best suppliers.
One: Supplier Market Share
Market share is the percentage of sales (counted in revenue or units) that one supplier has in a given market. Market share is an important indication of a supplier’s success within its industry and explains how competitive it is relative to other suppliers in the space. Understanding a supplier’s relative position in the market can help sourcing teams understand what kind of supplier it is dealing with (i.e. global, regional, niche provider, etc.) and provide some context as to what that supplier’s key differentiators are likely to be. Suppliers with a large market share usually hold some type of competitive advantage in the current market that has enabled them to become dominant. On the other hand, low market share may not disqualify a supplier from bidding, but it does indicate that other, larger and more successful competitors exist. Reviewing the market share held by participating bidders can also be a good check to ensure that the bidding process includes an appropriate number of top or qualified suppliers. Additionally, understanding market share movements is a good way to identify shifts in the supply market and understand where value and innovation are being generated. Large drops in market share by a bidder should raise a red flag and generate some level of research by the sourcing team.
Quality can mean different things to different stakeholders and it can mean different things for different categories. No matter the stakeholder or category, it is the sourcing professional’s job (and challenge) to develop a consensus view of quality for a specific project and some standard framework that can be applied to each bid or supplier. Different industries have developed different standards for quality and performance that can be used to help quantify quality but stakeholders must also be engaged. Interviews and surveys are two primary methods used to gather quality feedback. eSourcing tools are a great way to capture stakeholders’ quality grades of the different bidding suppliers.
Three: Quality Assurance and Control
If quality is an important factor, then a supplier’s ability to consistently deliver it should be evaluated. Quality assurance is the ability of a supplier to prevent defects or poor delivery on a consistent basis. Sourcing teams will want to evaluate a supplier’s QA programs and understand how they are applied to production and delivery processes. Depending on the industry, a supplier could also be managing the quality of its raw materials, assemblies, products and components, services related to production, and its management, production and inspection processes. While the level of rigor in a QA program should be defined by the production, type, and usage of the goods/services, it is important to note that QA should not be limited to manufacturing businesses only. Sourcing teams must decide which of these QA aspects are relevant to their categories and then compare and contrast supplier QA programs to industry standards, benchmarks and other suppliers’ programs.
Using non-price attributes to make an award decision is speaking the language of the Chief Procurement Officer, it is part of the fabric of a mature procurement organization, and it is a critical strategy used by today’s sourcing pros. Groups that use non-price attributes will become more sophisticated and advanced in their sourcing capabilities and in their ability to combine non-price and price factors into the overall evaluation of supplier bids. These groups will also be able to source more complex categories and engage more stakeholders. To ensure that optimal results are achieved, it will be important for these groups to leverage eSourcing tools to help quantify the qualitative and develop templates and approaches for the most frequently-used attributes.
Stay tuned for three more non-price attributes that procurement teams can use to source better.