The Category Sourcing Scorecard series, which was published last month, introduced the key inputs to a “virtual” tool or framework that teams could use to build out their sourcing pipelines. Since the series cut across seven different articles, I wanted to provide a single summary of the virtual tool in today’s article. After that, I plan to build a usable Scorecard in Excel (more on that later).
Category Sourcing Scorecard
The purpose of this tool is to provide a framework to help sourcing teams identify and then prioritize the different categories of spend into a sourcing pipeline (Sidebar: we’ve previously discussed why we believe it is important to have and actively manage a sourcing pipeline and how to get started building one). The Scorecard helps sourcing teams evaluate different categories across a standard set of sourcing considerations or factors; it also provides a framework so those factors may be quantified and compared. The end result is a sourcing “score” for each category that can then be used to rank order categories for sourcing and allocate resources.
Tool Design
The tool will use a survey mechanism to ask sourcing teams a set of multiple choice questions and then quantify those responses into the above-mentioned score. All told, we identified 22 specific sourcing considerations factors which we then organized into five different groups as detailed below (Note: I have included a link to the specific article written for each group).
1. Internal/Organizational factors
This group is conceived as a “pre-screening” mechanism to help quickly remove certain categories from immediate placement into the pipeline. Many of the removed categories simply require a longer lead time to properly source; as a result, an action plan for many of these categories should be developed to ensure that they are eventually added to the pipeline. After all, we continue to stand by the eSourcing 2.0 principle that states that every negotiation that results in an executed contract should use an eSourcing solution.
The factors in this group look at the organization, the sourcing team, and the general internal landscape for sourcing a category – what the category actually is, is beside the point. These factors try to ferret out any red flags that indicate that sourcing a specific category will be too difficult or time-consuming and/or does not make sense or will probably generate an unfavorable result. The factors:
- Contract status
- Sourcing history
- Stakeholder engagement
- Number of stakeholders
- Access to spend information
This group of factors is based upon Michael Porter’s Five Forces Model and uses Porter’s framework to help understand how competitive a specific supply market is. The higher level of competition among a category’s suppliers tends to benefit the buyer and make sourcing more attractive. While this is not true in all cases, a competitive supplier market generally indicates a good sourcing market. The factors:
- Level of Competition (as defined by the number of potential suppliers)
- Market Entry Barriers
- Substitute Availability
- Buyer’s Relative Bargaining Power
The factors in this group describe the capabilities and attributes of the suppliers of a specific category which may make the category more favorable for sourcing. The factors:
- Highly-Specialized or Unique Capability
- Supplier Profit Margins
- Value-Added Service component
- Level of Technical Excellence
- Financial Stability
The factors in this group focus on the buying process and how the usage of the category impacts both the enterprise and its results. How a category is used is not universal across different companies and is often quite dependent on the unique buying company – the same can be said for quantity used and relative opportunity available for each category. The factors:
- Supply Assurance Risk
- Business or Production Impact
- Category Spend Volume
- Estimated Savings Potential
As the name implies, the factors in this group look at the unique attributes of a category that may either lend themselves to sourcing or not. The factors:
- Strategic Impact
- Category Complexity
- Lead Time
Please feel free to email me with any feedback, comments or questions – we’ll keep you posted on the development of our excel-based Scorecard.
