First of five steps for a successful strategic sourcing project.
Before doing any strategic sourcing project, it is wise for the company to identify and select the projects that should be undertaken. After all, the process would require a lot of effort and time and it is just appropriate to determine whether the company can maximize the bottom-line benefits in spend reduction from the project. Hence, it is advised to start any strategic sourcing initiative with a comprehensive opportunity assessment and baseline development.
During Opportunity Assessment, the project sponsors must investigation and quantify the potential to achieve cost savings on the various spend categories of the company. It might require deep-dive of the historical data and determine which third-party goods and services comprise substantial requirements to the firm in terms of costs and risks. The analysis could further facilitate to painting the current supplier base picture for the spend category and the opportunity to consolidate requirements to optimize the awarding of business. Project Managers must also take into consideration the bargaining power of suppliers in the industry and the business risks that would have to be managed during the sourcing execution. With these information, the firm will be able to identify the spend category/ies that could be pursued based on feasibility and business impact (i.e., cost savings).
Once the categories have been identified, Project Managers should proceed to Baseline Development and determine and quantify the project’s coverage in terms of requirements. For example, if the company identified opportunities to achieve cost savings from their incumbent Temporary Labor requirements, they must identify which of these Temporary Labor service items should be covered. Aside from this, they must also translate these requirements into actual numbers – i.e., in terms of volumes and prices – that would be used as basis for measuring the success of the initiative. The resulting “baseline spend” for the category would be the amount that the company would aim to reduce through strategic sourcing.
– Jules Falzado, Senior Process Consultant, ECCI