In large organizations, purchasing and procurement managers follow a strict strategic sourcing process that meets the wider expected outcomes set by the organization. These outcomes are defined by the key priorities of the company.
The key priority in highly competitive fields could be price, whereas, in other industries, it might be shipping efficiency and speed to market. Every company will have a slightly different sourcing process.
The majority of companies follow the 7 step sourcing process, as defined by A. T. Kearney. Since 2001, the 7 step strategic sourcing process has stood the test of time and has become the gold standard for sourcing.
What is the Seven-Step Strategic Sourcing Process?
The seven-step sourcing process is the process by which purchasing managers will obtain the critical products/services an organization needs in order to meet its wider goals.
Every industry will use a version of the 7 step strategic sourcing methodology. Whether it relates to unprocessed raw materials or finished goods, purchasing managers will use the same general sourcing process steps.
Take note; the exact strategic sourcing methodology may differ slightly depending on which website you happen to consult.
Who Uses the 7 Step Sourcing Process?
Procurement professionals will all use the 7 step strategic sourcing framework.
Although purchasing and supply chain managers will ultimately make the final decisions, all procurement professionals play a vital role in accomplishing each of the steps within the 7 step procurement process.
Ultimately, for the strategic sourcing framework to be successful, they must meet certain wider objectives.
Main Objectives
Objectives will always differ in priority between different companies, but all companies aim to accomplish certain goals through their strategic sourcing strategies.
These are the main objectives of the sourcing process steps.
- Driving efficiency.
- Solving business problems.
- Boosting speed to market.
- Promoting constructive competition.
- Risk mitigation.
- Ensuring industry compliance.
- Limiting purchasing costs.
Step One: Understand the Spend Category
The first step in the sourcing process is to understand the spend category. There are five major questions purchasing managers must answer when defining their spend category. It’s vital to consider the following in as much detail as possible:
- What is the Sourcing Category?
- What are the Characteristics of that Category?
- What are the Outcomes of Our Process Review?
- Have We Inspected and Reviewed the Marketplace?
- What is the Key Cost Driver?
Step Two: Supply Market Assessment
Purchasing managers must be aware of the vendor’s market and the challenges they face. Understanding representation and the major market players will help you to understand the power of different suppliers, and therefore how much competition there is.
Shrinking markets, more vendors, industry intensity, and general competitiveness all determine bargaining power.
Through understanding the vendor’s market environment, buyers are better positioned to negotiate the best deal on their purchases.
Step Three: Collect Supplier Information
The next step involves looking into specific vendors. Understand how they operate and whether they can meet your needs.
It’s strongly recommended that companies organize in-person visits to ensure industry compliance.
Step Four: Develop the Sourcing Strategy
The most common option for sourcing strategies is the Request for Proposal (RFP), which actively solicits bids. It’s also wise to implement a Request for Information (RFI) to narrow down existing shortlists.
RFPs should be extremely well-defined and come with strict specifications. Cloud-based procurement solutions can speed up the sourcing process.
Step Five: Negotiate and Select Suppliers
The fifth step in the 7 step sourcing process involves negotiating with different suppliers. Larger companies will typically host multiple rounds of negotiations.
To facilitate the signing of a contract that specifies buyer and seller expectations, contract management software should be deployed to automate the process.
Step Six: Communicate and Implement
Ensure that everyone involved in the delivery process has the means to communicate and collaborate. Smooth implementation can only occur when everyone understands their role in the process.
This is where strong communicators demonstrate their worth.
Step Seven: Benchmarking
Benchmarking is the final step in the 7 step strategic sourcing process and involves ensuring that the vendor meets the specifications set out in the contract.
Companies must implement full monitoring of purchases and delivery to ensure there are no lost savings or overspending.
Much of this can be automated through innovative, cloud-based dashboards. If there are any signs that key milestones will be missed, it’s important to communicate with the vendor immediately.
This final step is where many companies burst their budgets and compromise their key goals.
Conclusion
The 7 step sourcing process plays a vital role in helping organizations meet their overall business goals. A flawed sourcing plan can derail a company and turn a profitable brand into an unprofitable brand,
Much of the strategic sourcing process can be automated and streamlined using specialist cloud-based software.
Learn more about the different cutting-edge sourcing solutions as well as supply chain management software available from TradeBeyond.Contact us today!
