The sourcing process is composed by several steps seeking vendor information. Quotes for new products and more specifically, lead times, pricing, and orders quantities.
We can divide the process in internal assessment, market assessment, collecting supplier information, sourcing strategy, bidding process, negotiate select and contract implement.
Those steps are complemented in a continuous process with the verification phase, which includes measuring and reporting, capturing lessons and finally, ensuring compliance.
1. Internal Assessment
Here we start by confirming the categories with the technical teams. Try to figure out with engineers what exactly people want. After that you look to validate baseline information.
That means to discover what is valuable on the marketplace, how much it will cost to order, how long it will take to get to you. Basic information about the items you are looking for.
Then you need to define the company customers. Who are you buying to? On other words, what are the target audience of the company, what they value the most and how they conduct business.
Not only the customers, but you also need to find out the other side of the business. So, you need to identify the key constituents. Find out who are the decision makers and who you are buying for.
In the end, you need to understand the current purchasing process of the company. Try to find out what is working and what’s not, implement your own way and combine the strong points.
2. Market Assessment
This step is more focused on the market dynamics and trends. The research shift from the inside of the company to how the market is working and dealing with the item you want to order.
One important aspect in the stage is the behavior of price, is it going up or going down? Should the order be delayed getting a better market scenario? Should it be sooner?
Identify your possible suppliers and see what competitors are doing. These insights can have a direct impact in the profitability margin. By looking at what competitors are doing, you can understand what to do and what to get better at.
3. Collect Supplier Information
The first important aspect of supplier information is spent analysis. How much you will spend with those suppliers, what are involved in costs beyond prices. For instance, what will be the lead time, which includes transportation and warehouse.
So, how much is spent in general. What the evaluations criteria are. This survey will also have a direct impact in profitability. You need to establish a relation with suppliers that will be used for other cycles.
4. Sourcing Process Strategy
Finally, you develop the specifications of what you going to buy. Then you find what are the sourcing levers. Are the suppliers already partners with the company? Do they need more business?
You can find better prices with suppliers that need more business. On the other hand, if the supplier doesn’t need your business at all, you can expect higher prices and costs.
Then you want to analyze the steady scenario. What will it look like when everything is set? How much is the total cost of the transaction? With larger suppliers you can, for example, both buy and sell materials.
5. Bidding Process
The bidding process is the stage where you develop a request and disseminate the evaluation criteria. You decide the bidding format, which include auctions and strategies for bought.
After you conduct the bidding process, you’ll end up with a short list of suppliers that can cover your needs. From that list you need to select the best one for your company and strategy.
6. Negotiate Select
Here you need to negotiate the proposals with the short list suppliers. Maybe they’ll have ideas that you didn’t think before that will make process more efficient and low cost.
After you listen to the proposals and find out what are the best options you will get a contract with the supplier that attends you the best. After you start the negotiations, you go the contract implement.
7. Contract Implement
In the latest phase of your sourcing process, you will develop your contract plan and communication plan. Is important that everyone in your company and in the supplier knows what’s going on.
You develop a measurement and audit plan to make sure you are monitoring the performance of your supplier. This is important to the evaluation at the end of the cycle. You need to know if the supplier delivered what was promised.
Another important act of your contract implement is the capture of intellectual capital, that means, if the supplier is doing something interesting, you can perform the same thing or profit from the capability.
Sourcing Process Feedback Loop
By the end of the sourcing process, what you need to do is evaluate the contract and the supplier performance. Evaluate if everything was done accordingly to what you agreed upon and see what can be done better.
A good way to evaluate the supplier is the cobweb diagram which include several types of metrics of evaluation, such as:
- Quality
- Cost competitiveness
- Administration
- Technology/Systems
- Sustainability
- Innovation
- Responsiveness
- Logistics improvements
Therefore, Supply Brain with a simplified procurement process automation tool, helps eliminate repetitive and manual tasks in an intelligent manner. Thus, the purchasing area gains time and productivity to invest effort in more strategic tasks. Meet Supply Brain, free your time!
