Sourcing Process

Why use a formal strategic sourcing process?

Experience has shown that the 7 step* strategic sourcing process developed in 2001 has
stood the test of time and with variations, has become best practice. The main objective of
strategic sourcing is to save money but other reasons include improving the acquisition
process, supplier performance and minimizing risk.

Below is a summary of the 7 Step Strategic Sourcing Process and after that an explanation
of each step.

Step 1 Profile the category

Understand everything about the spend category as the first step in the strategic sourcing
process. This means defining the category and commodities in it. What is the current
quantity used, types and sizes. Who are the users, where are they located, what are the
processes used and who else is involved in the supply chain. Data must be documented in
as much detail as possible as changes may be needed.

Step 2 Supply market analysis

Identify potential new global and local suppliers. Study the cost components of the product
or service, and analyze the suppliers’ marketplace for risks and opportunities. Key raw
material prices and other variables such as labor and transportation must be priced and
calculations done of the suppliers’ cost elements.

Step 3 Develop the strategy

Deciding where to buy while minimizing risk and costs is how you develop the strategic
sourcing strategy. Using a cross functional project team is a must. The strategy will depend
on what real alternatives there are to the current suppliers, how competitive the supplier
marketplace is and importantly, how open the users are to new suppliers.

Step 4 Select the sourcing process

The most common method of sourcing is to use a Request for Proposal process for soliciting
bids. It includes product or service specifications, delivery and service requirements, pricing
breakdown and legal and financial terms and conditions. Often the evaluation criteria are
also stated.

Step 5 Negotiate and select suppliers

The first round of the negotiation process, after reducing the bids to the valid ones, is
conducted with many suppliers asking for clarifications and more detail where needed. A
good strategic sourcing strategy is to conduct multiple rounds of negotiations to get to a
short list. The final selection is usually done by the team and signed off as per the approval
process.

Step 6 Implement and integrate

Notify the successful suppliers and ensure that they are involved in the implementation
process. Implementation plans vary depending on the degree of changes. The
communication plan in the strategic sourcing strategy will include any improvement to
specifications or process, changes in delivery or service requirements or pricing.

Step 7 Benchmarking and tracking results

This is a key element of the sourcing management process. It is the start of a continuous
cycle, starting with benchmarking the current status of the commodity or category,
monitoring the results and ensuring that full value is being achieved. Back to Step 1 to
review the supply market again and restart the process in a constantly evolving
marketplace.