Market Assessment

Traditionally, the next step in the strategic sourcing initiative is to conduct a Market Assessment. Here the sourcing team must look at a number of factors in determining the status of the marketplace.

First, ask the question “Is now the right time to source?” The team must look at market
conditions to determine the feasibility of a sourcing initiative.

• Recent market events such as natural disasters that cause supply disruptions may hinder
the efforts of both domestic and global sourcing. Commodity areas can be highly affected by these events. Suppliers may be implementing Force Majeure clauses contained in contracts.
• Currency fluctuations can effect whether offshore sourcing is an attractive option at this
time.
• What are the competitors doing? Have competitors recently hit the market in search of
price relief or to try to lock up supply?
• Have new technologies, regulations, policies recently changed the marketplace?

If now is not the optimum time to source, when will the initiative be more successful? When t

Purchasing managers and strategic sourcing professionals often follow a consistent methodology when planning and conducting a sourcing initiative. Having a process provides a framework that, when correctly applied, can produce sustainable savings in a consistent manner. Creativity in the application of the strategic sourcing process will have a dramatic effect on the results achieved, regardless of whether a seven step sourcing process or a customized internal sourcing process is used.

In order to best optimize the results of a strategic sourcing initiative, there are several questions
that should be answered at the project’s initiation:
• How can we improve our understanding of the sourcing process?
• What are the X-factors that arise when executing a sourcing project?
• What other considerations should the sourcing professional account for while administering
the strategy?

Two frequently overlooked components of any strategic sourcing methodology involve the collection of innovative market information and the supplier approach strategy. Often during the course of a strategic sourcing initiative, new product developments, alternate technologies, and shifts in spend patterns present themselves. A Creative Sourcing™ process is dynamic, so the sourcing professional may need to implement a revised or new strategy to adapt to changing conditions and events.

The sourcing professional should consider how and when to approach both incumbent and alternate suppliers during the actual sourcing phase. Imaginative strategies and open communication will help motivate suppliers to present the best proposal and optimize the total project results.

Project Team and the Internal Benchmark

The benchmark will set the foundation upon which the sourcing initiative will be built and measured. Before the benchmark can be established, the project team must be assembled. The project executive or sponsor should identify the best resources both internally and externally to work on the initiative. The project sponsor must ask the following questions to begin to develop the team:
• Who within the core sourcing group is best equipped to work on this initiative?
• Who can be enlisted from other departments within the company to participate in the
cross-functional team?
• Should additional resources be recruited from outside the company? (either consultants or
business partners)
• What is the cost of applying these resources?

Determining the best, most cost effective resources will help to ensure that the ensuing process is a focused, collaborative effort that yields tangible results. Once the project team has been selected, the key decision makers must be identified and introduced to the project team. Establishing the roles and responsibilities for each team member at the start of the initiative creates a defined structure to help the process move quickly and effectively.

Filter out subjective thinking prior to beginning the initiative. The sourcing professional should recognize that internal biases may, and usually do, exist. These biases could include anything from previous negative experience with the process itself, former suppliers, or may simply be the opinions of individuals that are subjective and unrelated to the initiative at hand. In some cases, the sourcing professional themselves may hold the biases. In these situations, the professional must make other members of the team aware of their bias, so that other team members can help make the process objective rather than subjective.

Prior established relationships with incumbent suppliers should be approached in an objective manner. Revisit past decisions from previous sourcing initiatives and determine what new opportunities may exist this time around. If possible, approach the sourcing project as if it were for a new product in the developmental stage. Start the initiative with a clean, objective slate.

Lastly, the project team’s motivation should be evaluated at this stage of the project.
• Are there incentives or bonuses available relative to the success of the initiative?
• Are high level executives and management supportive of the initiative?
• Does the team have the sponsorship and ability to drive change throughout the
organization?

Positive reinforcement and the idea that the initiative is a highly visible, true team effort is an invaluable component of a successful outcome. Failure to have all of these components in place at the benchmark stage will ensure a mediocre result.

The internal benchmark for recurring purchases should objectively define what has been done in the past (qualitatively and quantitatively) and identify the implications to the spend category of future strategic plans. At a minimum the benchmark should identify what is being sourced, from whom, pricing structure, service level requirements and future considerations.

For new spends, the benchmark should identify the purpose of the expenditure and have some preliminary proposals or cost estimates as a basis for the spend category.

At the conclusion of each sourcing event, the recommended course of action should be compared to the benchmark and all of the quantitative, qualitative and cost avoidance results should be measured and reported.

Market Assessment

Traditionally, the next step in the strategic sourcing initiative is to conduct a Market Assessment. Here the sourcing team must look at a number of factors in determining the status of the marketplace.

First, ask the question “Is now the right time to source?” The team must look at market
conditions to determine the feasibility of a sourcing initiative.

• Recent market events such as natural disasters that cause supply disruptions may hinder
the efforts of both domestic and global sourcing. Commodity areas can be highly affected by these events. Suppliers may be implementing Force Majeure clauses contained in contracts.
• Currency fluctuations can effect whether offshore sourcing is an attractive option at this
time.
• What are the competitors doing? Have competitors recently hit the market in search of
price relief or to try to lock up supply?
• Have new technologies, regulations, policies recently changed the marketplace?

If now is not the optimum time to source, when will the initiative be more successful? When t

The sourcing professional should consider how and when to approach both incumbent and alternate suppliers during the actual sourcing phase. Imaginative strategies and open communication will help motivate suppliers to present the best proposal and optimize the total project results.

Project Team and the Internal Benchmark

The benchmark will set the foundation upon which the sourcing initiative will be built and measured. Before the benchmark can be established, the project team must be assembled. The project executive or sponsor should identify the best resources both internally and externally to work on the initiative. The project sponsor must ask the following questions to begin to develop the team:
• Who within the core sourcing group is best equipped to work on this initiative?
• Who can be enlisted from other departments within the company to participate in the
cross-functional team?
• Should additional resources be recruited from outside the company? (either consultants or
business partners)
• What is the cost of applying these resources?

Determining the best, most cost effective resources will help to ensure that the ensuing process is a focused, collaborative effort that yields tangible results. Once the project team has been selected, the key decision makers must be identified and introduced to the project team. Establishing the roles and responsibilities for each team member at the start of the initiative creates a defined structure to help the process move quickly and effectively.

Filter out subjective thinking prior to beginning the initiative. The sourcing professional should recognize that internal biases may, and usually do, exist. These biases could include anything from previous negative experience with the process itself, former suppliers, or may simply be the opinions of individuals that are subjective and unrelated to the initiative at hand. In some cases, the sourcing professional themselves may hold the biases. In these situations, the professional must make other members of the team aware of their bias, so that other team members can help make the process objective rather than subjective.

Prior established relationships with incumbent suppliers should be approached in an objective manner. Revisit past decisions from previous sourcing initiatives and determine what new opportunities may exist this time around. If possible, approach the sourcing project as if it were for a new product in the developmental stage. Start the initiative with a clean, objective slate.

Lastly, the project team’s motivation should be evaluated at this stage of the project.
• Are there incentives or bonuses available relative to the success of the initiative?
• Are high level executives and management supportive of the initiative?
• Does the team have the sponsorship and ability to drive change throughout the
organization?

Positive reinforcement and the idea that the initiative is a highly visible, true team effort is an invaluable component of a successful outcome. Failure to have all of these components in place at the benchmark stage will ensure a mediocre result.

The internal benchmark for recurring purchases should objectively define what has been done in the past (qualitatively and quantitatively) and identify the implications to the spend category of future strategic plans. At a minimum the benchmark should identify what is being sourced, from whom, pricing structure, service level requirements and future considerations.

For new spends, the benchmark should identify the purpose of the expenditure and have some preliminary proposals or cost estimates as a basis for the spend category.

At the conclusion of each sourcing event, the recommended course of action should be compared to the benchmark and all of the quantitative, qualitative and cost avoidance results should be measured and reported.

Market Assessment

Traditionally, the next step in the strategic sourcing initiative is to conduct a Market Assessment. Here the sourcing team must look at a number of factors in determining the status of the marketplace.

First, ask the question “Is now the right time to source?” The team must look at market
conditions to determine the feasibility of a sourcing initiative.

• Recent market events such as natural disasters that cause supply disruptions may hinder
the efforts of both domestic and global sourcing. Commodity areas can be highly affected by these events. Suppliers may be implementing Force Majeure clauses contained in contracts.
• Currency fluctuations can effect whether offshore sourcing is an attractive option at this
time.
• What are the competitors doing? Have competitors recently hit the market in search of
price relief or to try to lock up supply?
• Have new technologies, regulations, policies recently changed the marketplace?

If now is not the optimum time to source, when will the initiative be more successful? When t

Filter out subjective thinking prior to beginning the initiative. The sourcing professional should recognize that internal biases may, and usually do, exist. These biases could include anything from previous negative experience with the process itself, former suppliers, or may simply be the opinions of individuals that are subjective and unrelated to the initiative at hand. In some cases, the sourcing professional themselves may hold the biases. In these situations, the professional must make other members of the team aware of their bias, so that other team members can help make the process objective rather than subjective.

Prior established relationships with incumbent suppliers should be approached in an objective manner. Revisit past decisions from previous sourcing initiatives and determine what new opportunities may exist this time around. If possible, approach the sourcing project as if it were for a new product in the developmental stage. Start the initiative with a clean, objective slate.

Lastly, the project team’s motivation should be evaluated at this stage of the project.
• Are there incentives or bonuses available relative to the success of the initiative?
• Are high level executives and management supportive of the initiative?
• Does the team have the sponsorship and ability to drive change throughout the
organization?

Positive reinforcement and the idea that the initiative is a highly visible, true team effort is an invaluable component of a successful outcome. Failure to have all of these components in place at the benchmark stage will ensure a mediocre result.

The internal benchmark for recurring purchases should objectively define what has been done in the past (qualitatively and quantitatively) and identify the implications to the spend category of future strategic plans. At a minimum the benchmark should identify what is being sourced, from whom, pricing structure, service level requirements and future considerations.

For new spends, the benchmark should identify the purpose of the expenditure and have some preliminary proposals or cost estimates as a basis for the spend category.

At the conclusion of each sourcing event, the recommended course of action should be compared to the benchmark and all of the quantitative, qualitative and cost avoidance results should be measured and reported.

Market Assessment

Traditionally, the next step in the strategic sourcing initiative is to conduct a Market Assessment. Here the sourcing team must look at a number of factors in determining the status of the marketplace.

First, ask the question “Is now the right time to source?” The team must look at market
conditions to determine the feasibility of a sourcing initiative.

• Recent market events such as natural disasters that cause supply disruptions may hinder
the efforts of both domestic and global sourcing. Commodity areas can be highly affected by these events. Suppliers may be implementing Force Majeure clauses contained in contracts.
• Currency fluctuations can effect whether offshore sourcing is an attractive option at this
time.
• What are the competitors doing? Have competitors recently hit the market in search of
price relief or to try to lock up supply?
• Have new technologies, regulations, policies recently changed the marketplace?

If now is not the optimum time to source, when will the initiative be more successful? When t

Lastly, the project team’s motivation should be evaluated at this stage of the project.
• Are there incentives or bonuses available relative to the success of the initiative?
• Are high level executives and management supportive of the initiative?
• Does the team have the sponsorship and ability to drive change throughout the
organization?

Positive reinforcement and the idea that the initiative is a highly visible, true team effort is an invaluable component of a successful outcome. Failure to have all of these components in place at the benchmark stage will ensure a mediocre result.

The internal benchmark for recurring purchases should objectively define what has been done in the past (qualitatively and quantitatively) and identify the implications to the spend category of future strategic plans. At a minimum the benchmark should identify what is being sourced, from whom, pricing structure, service level requirements and future considerations.

For new spends, the benchmark should identify the purpose of the expenditure and have some preliminary proposals or cost estimates as a basis for the spend category.

At the conclusion of each sourcing event, the recommended course of action should be compared to the benchmark and all of the quantitative, qualitative and cost avoidance results should be measured and reported.

Market Assessment

Traditionally, the next step in the strategic sourcing initiative is to conduct a Market Assessment. Here the sourcing team must look at a number of factors in determining the status of the marketplace.

First, ask the question “Is now the right time to source?” The team must look at market
conditions to determine the feasibility of a sourcing initiative.

• Recent market events such as natural disasters that cause supply disruptions may hinder
the efforts of both domestic and global sourcing. Commodity areas can be highly affected by these events. Suppliers may be implementing Force Majeure clauses contained in contracts.
• Currency fluctuations can effect whether offshore sourcing is an attractive option at this
time.
• What are the competitors doing? Have competitors recently hit the market in search of
price relief or to try to lock up supply?
• Have new technologies, regulations, policies recently changed the marketplace?

If now is not the optimum time to source, when will the initiative be more successful? When t

Market Assessment

Traditionally, the next step in the strategic sourcing initiative is to conduct a Market Assessment. Here the sourcing team must look at a number of factors in determining the status of the marketplace.

First, ask the question “Is now the right time to source?” The team must look at market
conditions to determine the feasibility of a sourcing initiative.

• Recent market events such as natural disasters that cause supply disruptions may hinder
the efforts of both domestic and global sourcing. Commodity areas can be highly affected by these events. Suppliers may be implementing Force Majeure clauses contained in contracts.
• Currency fluctuations can effect whether offshore sourcing is an attractive option at this
time.
• What are the competitors doing? Have competitors recently hit the market in search of
price relief or to try to lock up supply?
• Have new technologies, regulations, policies recently changed the marketplace?

If now is not the optimum time to source, when will the initiative be more successful? When timing is poor, your best strategy may be to go for a contract extension at existing prices. A full sourcing event can be conducted at a later date when market forces are more favorable.

Review market price trending in the product area you are planning to source. Have prices increased or decreased over the past 12 months? Is supply tight or is product abundant? In many product areas, there are several moving parts that need to be tracked. Indexed-based commodities and products are moving targets that require ongoing attention to monitor market movements. Investigate not only the history of the market, but research what the experts of analysts of that market are predicting. A minimal financial investment in this data now can potentially reward the project with significantly higher savings in the future.

Assess any new developments in the market. Are there emergent technologies that will give your company a competitive advantage? Is the marketplace moving toward an innovative solution that may provide a cost advantage in the near future? Buying at the end of a product life cycle could cause the organization to overpay for outdated technology. Research and attention to these factors will help avoid a potentially costly mistake.

Collect Supplier Information

After the initial market assessment, look to qualify as many suppliers as possible. Limiting the potential supplier base can only limit the opportunity for a successful initiative. The larger the potential supplier base, the greater the chance to identify innovative opportunity and increased value.

Begin collecting information on the potential supplier base. The main focus should be to cast a wide net into the market. Identify the supplier base of competitors. Consider foreign suppliers even if there is no intent to import. Foreign suppliers may be willing to establish domestic importers or distributors if your volumes are high enough or they intend to establish themselves in the marketplace. Their motivation will be to establish a foothold in a new market. This can potentially be used as an advantage in negotiations.

After developing the first pass supplier list, establish contact with each one to gauge their interest and viability in this initiative. Does this supplier have potential to become a part of my existing supply base? Are they able to provide the required service and volume commitments? If suppliers do not meet these qualifications, ask who they would recommend as a potential participant, or how they would suggest fulfilling the requirement. Be creative in finding alternate suppliers. Networking with fringe suppliers in this initiative can foster healthy relationships that may benefit a future project.

At this stage, most traditional sourcing processes utilize an RFI process to develop a short list of suppliers. However, it is too early in the sourcing cycle to disqualify suppliers that want to participate. Disqualifying suppliers at this time may cause you to miss a creative or innovative idea that may lead to the modification of the initial requirement or specification. Potential suppliers must be thought of as part of the sourcing team, and engaging as many as possible will help to develop the most innovative and cost effective strategy for the sourcing initiative.

Suppliers generally will not invest resources in competing for business that they have no chance of winning. If they seem to be an outlier, inquire about their interest and actively attempt to engage them in the process. Suppliers may hold some of the same biases that the internal team held at the initiation of the sourcing project. Attempt to identify and overcome the biases of the supplier. Any given supplier may hold the key to a creative solution that can help achieve superior results.

Develop Sourcing Strategy

The sourcing strategy should be developed and approached as a fluid, evolving process. Fine tuning of the sourcing strategy will be required as the team interacts with the potential supplier base through implementation and measuring results. Take note, however, that as market conditions fluctuate, or the goals of the organization change, the sourcing strategy may need to be revisited. A common mistake of strategic sourcing initiatives is to get stuck on the initial process and strategy regardless of a complex or moving market. Always be prepared to revisit the strategy and reincorporate ideas that may have been overlooked in a prior strategy.

One of the first goals of developing the sourcing strategy is to separate the requirements into minimum needs and maximum desires. Minimum needs are those aspects of a potential supplier agreement that must be met (i.e. expedited shipping, company logo branding, specific payment options). If a supplier is unable to meet these basic requirements but can provide some unique value, then consider partnering them with a supplier that can meet the minimum requirements. Maximum desires are bonus features of an agreement that will prove valuable to the company, but are not “deal breakers”. Establishing these criteria will and communicating them to the supplier will assist in the qualification process.

Listen to supplier concern