The Simple Sourcing Strategy to Leverage First, and Why.

The launch of a strategic sourcing program can be a daunting proposition. A.T. Kearney tells us that there are 64 strategies to choose from. Wow! It is also true, however, that one simple strategy should almost always come before the others. My suggestion would be to start with the “Volume Leveraging” strategy.

What is the “Volume Leveraging” strategy?

 It is aimed at maximizing cost savings and efficiencies by consolidating purchase volumes. Increased volumes can be achieved by combining spend from multiple sites, multiple product categories and a reduction in the number of suppliers. Volume can also be increased by negotiating longer-term contracts. From the supplier’s standpoint, volume is a function of estimated annual usage multiplied by length of the commitment.

Why this strategy first?

This strategy is typically easier and quicker to implement than others. In addition, it is often necessary to consolidate the supply base first, before other strategies can be successful. For example, if you have 30 box suppliers, then it will be impossible to develop relationships, measure performance or create joint cost reduction initiatives with them all. It will be necessary to radically consolidate the supply base first to make the other strategies possible.

What is the process?

The competitive bidding process is how to unlock these savings. I have leveraged the process below with great results! Once you have completed the upfront planning, you must obtain and analyze the spend data, then send out an RFI/RFP to selected suppliers in order to evaluate their capabilities versus your requirements. Then create a short list and send out an RFQ with technical specifications and estimated annual volumes. Finally, evaluate the responses, make your decision and award the contract.

Which Categories?

Since the process clearly requires multiple suppliers for a truly competitive bid, the number of suppliers in the marketplace is a key criterion. Obviously, a high amount of spend is critical too. Typically, categories could include packaging, MRO, office supplies and IT hardware.

Once you unpack it like this, I believe it becomes less daunting, and easier to get started.

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If you'd like to contact Steve directly, please drop me a line at: steve@biosupplyconsulting.com

Thank you!