HOW EFFECTIVE STRATEGIC SOURCING WILL GIVE YOU VALUE FOR MONEY

Transcription

1 HOW EFFECTIVE STRATEGIC SOURCING WILL GIVE YOU VALUE FOR MONEY Presenter: T Motsoeneng Chief Director: Supply Chain and Facilities Management COMPANY LOGO HERE Brought to you by

2 HOW EFFECTIVE STRATEGIC SOURCING WILL GIVE YOU VALUE FOR MONEY What is strategic sourcing? It is generally defined as a rigorous process of identifying the right supplier, not necessarily the cheapest or highest quality supplier, but the supplier that offers the greatest overall benefit to the organization. Cost saving is the most common procurement goal, and strategic sourcing is arguably the most comprehensive method for achieving costs savings.

3 WHY ADOPT STRATEGIC SOURCING COMPANY LOGO HERE Departments like strategic sourcing for three reasons Strategic sourcing is based on repeatable best practices. Instead of each department trying to figure out how to go about conducting competitive bidding for its own steps, strategic sourcing is a formalized process with a defined sequence of steps that have taken into consideration the most effective methods of competitive bidding. This maximizes both the effectiveness of the sourcing process and built into the process are best practices that ensure best outcome.

4 WHY ADOPT STRATEGIC SOURCING COMPANY LOGO HERE Strategic sourcing is led by experts in the sourcing process. There are many challenges to strategic sourcing; many mistakes can be made if the process is managed by someone without deep experience. Having the strategic sourcing process led by someone who has experienced all of the veritable landmines of sourcing leads to higher quality results. Most important strategic sourcing has proven to be very effective at reducing costs, cost reduction of 20% or more in a category of goods or services are common. The example will be department using different consultancy companies for the same service.

5 CATEGORIES OF SOURCING COMPANY LOGO HERE Reactive Sourcing It is the procurement approach where no proactive sourcing strategies have been put in place and so the purchasing and supply management function has an entirely reactive role like responding to requisitions or other unexpected requirements from the business. It is imperative for government departments to move away, wherever possible from this type of sourcing however some departments still operate entirely on the basis of unexpected demands responding to individual needs as and when they arise.

6 CATEGORIES OF SOURCING COMPANY LOGO HERE Tactical Sourcing It is to some extent reactive as it covers those business requirements that cannot be planned in advance but are provided within a framework of strategic sourcing. It is proactively managed and so resources and processes are set aside to manage it within the purchasing and supply strategy. If an unexpected requirement is adhoc, low risk and low value, purchasing should not be involved with obtaining the requirement and all low requirements should have been aggregated into call off contracts for use by the end user, those that are low value, yet high risk are precisely those that require strategic sourcing plans. Example of tactical sourcing is working colleagues in Marketing and sales providing a bid support activity within fast moving technology areas.

7 CATEGORIES OF SOURCING COMPANY LOGO HERE Strategic Sourcing It is the core activity in purchasing and supply; it is a complex commercial process requiring extensive knowledge and competence. It can be defined as satisfying business needs from markets via the proactive and planned analysis of supply markets and selection of suppliers with the objective of delivering solutions to meet pre-determined and agreed business needs.

8 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED 1. Governance For strategic sourcing teams to be successful, top- level management support is a must. Leading edge organizations have sanctioned supply chain management executives to oversee the work of the sourcing teams. The senior managers are influential supply chain management leaders. They drive strategy and goals, provide directions and align supply chain management strategy with departmental strategy. In addition they influence decision making and they remove barriers so that sourcing teams achieve their goals. The Supply Chain Executive seating at EMC level has overview of the direction of the organisation and each procurement project is then assessed on the merits of its contribution, to this direction and as such the procurement approach is the modeled into such direction.

9 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED 2. Cross- Functional Teams Although most departments use cross-functional teams for developing sourcing strategies some functions are not consistently involved. Creating sourcing strategies should be viewed as an organizational endeavor, not a supply chain task. It should be noted that cross- functional teams offer creativity through diversity of opinions and they build organizational buy-in for the sourcing process. Team members will be selected according to their knowledge, skills and expertise regarding the specific product or services. Each team member should fulfill a role and a team leader should take the lead in organizing meetings and securing project charter.

10 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED ROLES OF CROSS FUNCTIONAL TEAMS Technical Team Terms of Reference should be compiled by a specialist in the area of the assignment. Technical team should compose of technical people, who have understanding, knowledge and experience in the technical aspect of the project, those people must be able to guide the team. They must lead the evaluation stage and evaluate the responses of the companies that bided for that service or goods.

11 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED ROLES OF CROSS FUNCTIONAL TEAMS Supply Chain Team The Supply Chain team must ensure that the ToR indicate prequalification, for instance the number of minimum points to be scored to pre-qualify. The Supply Chain team must ensure compliance to all SCM prescripts. The SCM team must check compliance after the closing date of the bid and they must prepare the comparative schedule.

12 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED 3. Conduct Research Conduct through data collection and analysis. Sourcing of data can be internal such as the number of existing contracts, current suppliers, prices paid, or the various locations or business units using the products or services. External data include market information competitive benchmarking data and supplier s financial condition. An effective strategy development requires a global view. It may not make sense to sources products from overseas; nevertheless, global research can reveal new suppliers and provide benchmarks of the best in class performance in a supply industry. Such global benchmarks can be used to drive improvement among national or local suppliers.

13 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED 4. Departmental Alignment Internal user s involvement in developing sourcing strategies and supplier selection is highly recommended. If you would like to drive compliance with the new contract and achieve the true savings potential of the contract, your new supplier must not be perceived by your stakeholders as a Supply Chain supplier. It must be regarded as our supplier which the department collectively chose. If the supply chain section supplier perception exist, especially if you have ousted a popular incumbent, your stakeholders may exploit the reasons why choosing the supplier was a bad decision. During the course of a strategic sourcing process, communicate with your internal stakeholders, provide updates and solicit input routinely. In many departments stakeholders have the power to either help you achieve your cost saving potential or prevent you from reaching it. It is important to secure their buy-in and work in harmony with them.

14 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED 5. Total Cost of Ownership Members of sourcing teams need to focus on total acquisition cost. Most strategic sourcing decisions require tradeoffs between price and some other cost. An effective sourcing strategy identifies ways to improve performance, processes and practices related to working with a supplier. By thinking in terms of total acquisition cost, departments can identify opportunities for collaborations resulting in total reductions.

15 SIX EFFECTIVE STRATEGIC SOURCING POINTS TO BE CONSIDERED 6. Intergrated Demand Management Plan (IDMP) The objectives of the Demand Management Plan is to ensure that the resources required to fulfill the needs identified in the strategic plan of the institution are delivered at the right time, price, and that the quality will satisfy those needs of the users. Demand Management Plan is the integral part of the series of activities that will contribute to achieving the measured goals of the institution by ensuring that goods, works or services are delivered as originally envisaged with a reliable standard of quality and to the satisfaction of the endusers Demand Management should be coordinated by SCM officials of the institution in consultation with the end-users. This include a detailed analysis of the goods, works or services required, such as what should be executed, how quickly and with what materials, resources, equipment. The outcome of this activity should be a detailed planning document that outlines what goods, works, and services should be procured the manner in which they should be procured as well as the timelines to execute the procurement functions.

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