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

dianebrownconsulting@comcast.net

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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

4/16/2010 3

What is Strategic Sourcing?What is Strategic Sourcing?

• Characteristics

• Numbers-driven

• Collaborative

• Internally and Externally Focused

• Milestone and Metric Based

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author

4/16/2010 4

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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author

4/16/2010 5

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

4/16/2010 7

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

4/16/2010 8

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

4/16/2010 9

3: Know what your numbers 3: Know what your numbers

meanmean……

• ….and where the real opportunities exist

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author

4/16/2010 10

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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author

4/16/2010 12

5: Build collaborative 5: Build collaborative

relationshipsrelationships……....

• Sourcing Team

• Sponsors

• Stakeholders

• Suppliers

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author

4/16/2010 13

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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4/16/2010 14

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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author

4/16/2010 16

SummarySummary

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author

4/16/2010 17

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