Strategic Sourcing: Strategic Sourcing:
The Seven Critical Success FactorsThe Seven Critical Success Factors
NAPM DenverNAPM Denver
April 15, 2010April 15, 2010Presented By:
Diane Brown, C.P.M.
Diane Brown Consulting
303-809-8277
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author
4/16/2010 2
1: Know what Strategic Sourcing 1: Know what Strategic Sourcing
isis……
• Strategic sourcing is a proactive,
iterative, collaborative process that
consistently reduces the total cost of
externally purchased materials and
services over time
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author
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What is Strategic Sourcing?What is Strategic Sourcing?
• Characteristics
• Numbers-driven
• Collaborative
• Internally and Externally Focused
• Milestone and Metric Based
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The Strategic Sourcing ProcessThe Strategic Sourcing ProcessStep 1:
OpportunityAssessment
(2-6Weeks)
Step 1:
OpportunityAssessment
(2-6Weeks)
Step 2:
InternalSupply Chain
Analysis(2-6 Weeks)
Step 2:
InternalSupply Chain
Analysis(2-6 Weeks)
Step 3:
ExternalSupply Market
Analysis(2-6 Weeks)
Step 3:
ExternalSupply Market
Analysis(2-6 Weeks)
Step 6:
Transition &Integration
(4-6Weeks/Ongoing)
Step 6:
Transition &Integration
(4-6Weeks/Ongoing)
“Current”“Current” “Desired”“Desired”
�Identify Demand Drivers�Review Specifications
�Analyze Policies/Procedures�Map & Analyze Processes� Identify & Quantify Cost
Drivers� Implement Communication
Plan
�Complete RFI Process
�Complete RFP Process�Establish Performance
Metrics� Negotiate Contract�Develop Supplier Relationship Plan
�Develop Transition Plan
�Complete RFI Process
�Complete RFP Process�Establish Performance
Metrics� Negotiate Contract�Develop Supplier Relationship Plan
�Develop Transition Plan
�Analyze Industry
�Identify Viable Sources ofSupply
�Research Leading Practices� Identify External Cost Drivers
� Implement new processes
�Implement new systems�Implement Supplier
Relationship Plan� Measure Performance�Monitor Compliance
�Conduct RelationshipReviews
�Determine Objectives forNext Iteration
� Implement new processes
�Implement new systems�Implement Supplier
Relationship Plan� Measure Performance�Monitor Compliance
�Conduct RelationshipReviews
�Determine Objectives forNext Iteration
Step 5:
Strategy Implementation
(4-6 Weeks)
Step 5:
Strategy Implementation
(4-6 Weeks)
�Analyze Spend�Segment Spend�Analyze Suppliers�Review Contracts�Analyze Inventory
�Review Org. & Dept.Goals
�Identify & AnalyzeStakeholders
�Mobilize Team
�Develop CommunicationPlan
Gap Analysis
Step 4:
Sourcing Strategy Documentation(2-4 Weeks)
Step 4:
Sourcing Strategy Documentation(2-4 Weeks)
�Confirm Scope�Prioritize Improvement Opportunities�Develop Implementation Plan�Develop Communications Plan
Quick HitsQuick HitsQuick Hits
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2: Know your numbers2: Know your numbers……....
• Spend Analysis
• True spend
• Directionally correct
• Identification of the largest manageable scope
for each sourcing opportunity
• Validation of current plan
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author
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2: Know your numbers2: Know your numbers……....
• Direct Materials and Services
• Indirect Materials and Services
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author
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3: Know what your numbers 3: Know what your numbers
meanmean……Competitive
• Comparable market advantage
• Can have longer lead-times
• High unit cost /High volume
• Multiple sources of supply
Strategic• Competitive market advantage
• Long-lead time
• Technically complex
• High unit cost /High volume
• Few sources of supply
Rela
tive
An
nu
al S
pen
dL
ow
Hig
h
Low HighSupplier Interchangeability
Common • No marketing advantage due to
design differentiation
• Off-the-shelf, commercially available
• Readily substituted
• Low unit cost/High volume
• Many sources of supply
Unleveraged• Competitive market
advantage
• Long-lead time
• Technically complex
• High unit cost/low volume
• Few sources of supply
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author
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3: Know what your numbers 3: Know what your numbers
meanmean……
Rela
tive A
nn
ual
Sp
en
d
Low
Hig
h
Low High
Competitive Strategic
Supplier Interchangeability
Common Unleveraged
Minimize total cost
throughout product
life cycle
Product differentiation
Minimize cost of
acquisition
Minimize number of
items in category
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author
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3: Know what your numbers 3: Know what your numbers
meanmean……
• ….and where the real opportunities exist
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author
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4: Understand where you are and 4: Understand where you are and
where you want/need to gowhere you want/need to go……..
• Internal and External Focus
• Strategic Direction
• Processes
• Supplier Analysis
• Market Intelligence
• Supply Market Intelligence
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author
4/16/2010
11
4: Understand where you are and 4: Understand where you are and
where you want/need to gowhere you want/need to go……..Value Creation
Purchase Demand
Management
Supply Base
Management
Acquisition Cost
Management
Transaction
Costs
… purchase to
pay
… expediting
Design/
Development
Rationalization
- part count
- supplier
Tooling
Reduce Consumption
Consolidate Demand
Change Specification
Low Cost Supplier
Increased Competition
Relationship Restructure
Eliminate
need
Leverage
spend
Common
Specification
Co-operative
purchasing
Common spec
for volume
benefit
Lower cost
spec
DFM
Global
sourcing
World
Class
Operations
Process Fit
Scale/
Utilization
Bid-based
renegotiation
Benchmarking
Make/buy
Supplier development
Leverage
supplier
capabilities
Long Term
Contract
Logistics/Transportation
Acquisition/Transaction
Inventory
Transportation
cost
Packing
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5: Build collaborative 5: Build collaborative
relationshipsrelationships……....
• Sourcing Team
• Sponsors
• Stakeholders
• Suppliers
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author
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5: Build collaborative 5: Build collaborative
relationshipsrelationships……....
CommodityTeam
Approves
Involved/Impacted
Informed/Need to Know•Influential
•Neutral•Not Influential
•Unsure
•Supportive
•Neutral
•Not Supportive
•Unsure
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6: Actively Manage The Process6: Actively Manage The Process……
• Create a plan
• Manage the plan
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7: Track your progress7: Track your progress……
• Milestones
• Metrics
• Focused
• Strategic
• Meaningful
• Measurable
• Time-based
• Communicate
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SummarySummary
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author
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Strategic Sourcing: Strategic Sourcing:
The Seven Critical Success FactorsThe Seven Critical Success Factors
1. Know what strategic sourcing is
2. Know your numbers
3. Know what your numbers mean
4. Understand where you are and where you
want/need to go
5. Build collaborative relationships
6. Actively manage the process
7. Track where you are
All materials in this document may not be reproduced or utilized without the written consent of the
author