Sourcing Strategies and Options

Category Management Toolkit Sourcing Strategies and Options

Sourcing Strategies and Options Summary 2

What is a Sourcing Strategy? A Sourcing Strategy is the organisations’ agreed road map for managing a category, and may range from short-term tactical quick win plans to long-term category procurement strategies. The nature of the category will determine whether a sourcing strategy is required.

Where does it fit in with Category Management? Developing a strategy Plan and Implement Strategy

What is included in this guide? Sourcing Strategies Quick Win Plans Short to Medium (Tactical) Sourcing Plans Long Term Source Plans

Which processes does the tool apply to? Strategic Sourcing

Which other tools link to this guide? Source Planning Options Generation / Breakthrough Thinking Quick Win Planning Creating a Vision Business Requirements / Quality, Cost, Logistics, Development, Management Information (QCLDM)

Sourcing Strategies and Options 3

Sourcing Strategies The Strategic Sourcing process is an iterative cycle, in which a number of distinct stages of maturity can be identified. Strategic Sourcing teams will go through several stages of development - this is normal, as continual iteration is part of the Strategic Sourcing process. The level of maturity ranges from development of short-term tactical plans to long-term sourcing strategies. Each of these stages is described in more detail below.

Effectiveness/value

Depending on the nature of the category, it may never be necessary to develop a 3-year strategy. For example, categories with leverage spend characteristics in mature markets will probably only ever need a set of short/medium term Source plans or tactical plans. However, categories with technical and strategic characteristics will need longer term development plans and strategies. Sourcing may not always involve a procurement activity e.g. if there are existing, effective contract vehicles in place.

Procurement strategies

Long terms/ advanced source plans

Short /medium term source plans

Sourcing action plans - quick wins 0

6

12-18

18-24

24-36

months

Quick Win Plans A category that has not previously been managed by purchasing will start off the process with a quick win plan (i.e. easy opportunities that can be delivered in a 4-6 month period) whilst gathering facts and data with which to create a longer term plan. Quick Win plans are actions, typically with existing sources of supply, e.g. negotiations, simple specification changes, consolidation of volumes etc, and should be a one-sheet

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milestone summary – supported with a detailed action plan. Each owner of a milestone should have their own action plan. Quick wins may also arise in second and third cycles of Strategic Sourcing cycle.

Short to Medium (Tactical) Sourcing Plans After the first or partially complete cycle of Strategic Sourcing the resulting plan may be a tactical sourcing plan – stretching out 12 months maximum. A tactical sourcing plan is a simple summary of which suppliers the team has opted for, the allocation of business to each supplier and the cost improvement plan associated with each supplier. The summary sheet is backed up with: • •

An executive summary and simple business case for the sponsor A milestone plan and detailed action plan to deliver the source plan. Each owner of a milestone should have their own action plan • A QCLDM milestone plan • Detailed appendices of the interpretation of facts, data and analysis conducted by the team. Excluding appendices the tactical source plan should be no more than 10 pages

Long Term Source Plans After the first or second cycle of Strategic Sourcing the resulting plan may be a long term source plan – stretching out 12-24 months maximum. A simple strategy/series of tactics will have been agreed with the business to recondition the market place e.g. • • • • •

Significant changes to specifications and volume consolidation Reinvestment in new sources of supply Response to policy changes Response to organisational restructuring Significant cost improvement targets –15 - 20%

A long term/advanced source plan comprises • • • • •

An executive summary and business case for the sponsor – focussing on risks! Forecast cost improvement plan - 24 months Summary of which suppliers the team have reviewed, the current allocation of business to each supplier and the potential cost improvement plan associated with each supplier over 24 months A milestone plan and detailed action plan to deliver the source plan. In the collaborative model these are the category initiatives. Each owner of an initiative/ milestone will have their own action plan QCLDM milestone plan

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•

Detailed appendices of the interpretation of facts, data and analysis conducted by the team. Excluding appendices the long term source plan should be no more than 20 pages as a guide

Sourcing Strategies After the first or second cycle of Strategic Sourcing it is appropriate to develop a strategy, stretching out 12-36 months, for categories which need development over the longer term. This would generally only be used for items in the Strategic and Technical quadrants (see Portfolio Analysis) A full strategy will have been agreed with the organisation / collaborative partners to reshape the market place e.g. • • •

Fundamental changes to specifications and volume consolidation Reinvestment in new sources of supply in global locations Significant breakthrough improvements +30%

A sourcing strategy comprises: • • • • • •

An executive summary and business case for the sponsor – focussing on risks! Forecast cost improvement plan - 36 months Summary of which suppliers the team has selected, the allocation of business to each supplier and the cost improvement plan associated with each supplier over 36 months. A milestone plan and detailed action plan to deliver the source plan. Each owner of a milestone should have their own action plan QCLDM milestone plan Detailed appendices of the interpretation of facts, data and analysis conducted by the team.

Excluding appendices the category strategy should be no more than 30 pages as a guide.

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