While working on the recent articles that have focused on the importance of developing and maintaining an active Sourcing Pipeline and how to identify the best sourcing opportunities, I started to frame out the different factors that can influence the ease in which a category may be sourced and the likelihood that a favorable result will occur. For example, how a category is used and by whom and in what quantity can all have an impact on the sourcing process and the overall savings potential. Last time, we introduced five categories of factors that should be evaluated (1) Internal or Organizational factors (2) Market factors (3) Supplier factors (4) Buying factors (5) Category-specific factors. Now, we’re going to time the together in a new series.
The primary goal of this series will be to focus on the analytical aspect of developing a sourcing wave strategy which we will do by discussing the key factors that should be weighed in making those decisions. And, if we can detail out the primary factors that sourcing teams should consider and then organize them into a larger framework, I believe that we will have all of the inputs needed to develop a “Category Sourcing Wave” Scorecard that can be used by different sourcing teams to help prioritize their pipelines. As this series unfolds, we’ll talk more about the Scorecard, the inputs, and the Scorecard’s overall applicability. I hope think this will be an interesting exercise so, let’s get to it!
How this will work: From a process standpoint, we will first identify and define a group of factors and then discuss the primary factors within each group. We will then establish a scoring mechanism for each factor by creating a specific question with three multiple choice answers (Note: Please email me with any comments or ideas that you may have on how to improve the Scorecard – I will provide full attribution, if it’s desired).
First up:
Internal/Organizational factors
These are the factors that look at the organization, the sourcing team, and the general internal landscape for sourcing a category. For this group of factors, what the category actually is, is beside the point.
Factor #1 – Contract status
Discussion: Does a contract (or series of contracts) exist for the specific category? If one does, what is its duration and when will it expire? A review of a category’s current contracts is great way to understand the urgency of a sourcing need and the formal category requirements currently in place. For example, a great time to consider whether or not a new contract should be sourced competitively is when the current contract is about to expire. Additionally, the contract will define the incumbent supplier and give a sense as to the original relationship while providing a framework to evaluate the current supplier relationship and the supplier’s performance to date.
Scorecard Question: What is the contract status for this category and when will it expire?
Multiple Choice Answers: (A) No contract (B) Contract expires in the next 12 – 18 months (C) Contract expires in more than 18 months
Factor #2 – Sourcing History
Discussion: What should be reviewed here is how recently and at what level was the category was last put through a competitive bid. For example, if the category was sourced competitively (in a rigorous process) last quarter and there have been no dramatic market shifts or supplier issues, the opportunity for savings is probably lower than the category that has never been sourced. Beyond timing, it is also helpful to understand what sourcing experience (for this category) exists within the current sourcing team and stakeholders.
Scorecard Question: When was the last time this category was competitively sourced?
Multiple Choice Answers: (A) Less than 1 year (B) Between 1 and 3 years (C) More than 3 years
Factor #3 – Stakeholder engagement
Discussion: This factor looks at the relative ease or difficulty the sourcing team will have in driving this project forward based upon the level of engagement and interest that the key stakeholders have in conducting a sourcing project in the near term. The timing may be right and the market conditions may be favorable, but if the stakeholders have no interest in working with the sourcing team to award a new contract and potentially finding a new supplier, an otherwise “quick win” category may not be that quick to source nor provide a big savings win. Savings, after all, must be implemented; so, a sourcing project run against the wishes of the key stakeholders is less likely to gain traction within the enterprise. Remember that what we’re trying to do is prioritize a pipeline, not necessarily eliminate categories. Lack of engagement is something that can be overcome, but it can take time and it does take effort.
Scorecard Question: Rate the stakeholder’s level of engagement in sourcing this category.
Multiple Choice Answers: (A) Low (B) Medium (C) High
Factor #4 – Number of stakeholders
Discussion: If disengaged stakeholders can stall or thwart a promising opportunity, the same holds true for a sourcing project with many stakeholders representing different groups or constituencies. That is not to say that rationalizing requirements and standardizing the evaluation criteria can’t be done in a large group; of course they can. But, the sourcing team should be looking for the cleaner, simpler projects to start while laying the foundation for the more complex projects to follow. For example, sending a questionnaire out to stakeholders as a way to broach key issues and gain consensus months in advance of a formal project kickoff can be an effective way to turn the plurality of voices on a project into an asset.
Scorecard Question: How many different stakeholders will be involved in the sourcing of this category?
Multiple Choice Answers: (A) Many (B) Several (C) Few
Factor #5 – Access to information
Discussion: What do we know about the history of this category within the enterprise. Do we have good spend information? Do we understand how it was sourced previously and which suppliers participated in the bid? Do we know how it is procured and by whom? Do we know how it is used and by whom? Have we tracked and rated supplier performance? Etc….As you can imagine, this list could be extensive.
Scorecard Question: Is the category spend data and other historical information available?
Multiple Choice Answers: (A) No info (B) Partial info (C) Full info
And there you have the first five factors or considerations in creating a sourcing wave strategy.
Postscript: While writing this, I can already see that we may need an iteration or two to develop the final Scorecard and provide the right context and instructions on its usage. For example, we’ll need to provide guidance as to how to define “Many” or “Few” and the last factor (#5) should probably be split into two separate factors since spend visibility is so important to sourcing. Let me know what you think.