The Supplier Strategic Sourcing Process Explained

While people may talk about the procurement process, the procurement discipline actually encompasses a number of different processes. They include spend analysis, supplier relationship management, and contract management, just to name a few. If you have ever worked with procurement, there is a good chance that it was during the strategic sourcing process. Strategic sourcing touches many other stakeholder groups in an organization, such as engineering, as well as supply partners -- both current and prospective.

For engineers, if you are asked to be part of a strategic sourcing project team, you will probably learn early on that there is a standard, defined project management approach just like any other discipline would have, including product design and development. The process that guides this approach may include six steps or more, but it clearly divides the project effort into phases such as the identification of a need through the contract award as well as supplier performance management. Starting at a very high level, the process gradually narrows down the potential outcomes as more is learned and the company better understands the requirements that will ultimately guide its final supplier and sourcing decision.

Procurement team members will usually outline the overall project timeline based on their knowledge and experience of approximately how long each step, or phase, of the process requires. There is always a degree of variation from project to project based on scale, complexity, and the number of interested parties. The project phases are not equal in duration and do not require the same level of effort or time commitment from the project team.

The logic behind this phased approach to sourcing project management is an emphasis on good decision-making. At the end of each step in the process, the project team usually has to make a decision. In some cases, once a decision has been made and acted upon, it is impossible (or at least very difficult) to go back and correct a mistake.

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The decisions that end each phase of the strategic sourcing process include the definition of a pool of spend and applicable suppliers, the determination of a sourcing strategy, the selection of an approach to supplier negotiation, and the decision to award contracts to one or more suppliers. There may still be decisions and judgment calls to make within each phase of the project, but they are not usually direction-setting. The project team must weigh more substantial directional decisions carefully, and an executive sponsor must often sign off on them because many of them are "points of no return."

When a project cannot recover from a poorly or mistakenly made decision without significant delay and cost, its importance marks a turning point in the management of the project. But this is certainly not unique to procurement efforts. As Greg M. Jung wrote in an April 30 Design News article, "As today's product design cycles are held to tighter schedules and budget constraints, it's becoming even more critical to consider human factors up front to catch and fix problems during the initial development stages, when it's faster and less costly to do so."

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An example of a strategic sourcing "point of no return" is the decision to eliminate a supplier from contention. Once a supplier has been eliminated and informed, trying to bring it back into the process not only raises doubt about the team's ability to manage the sourcing project, it also undermines authority when the time comes to negotiate with that supplier. These decisions, therefore, have to be made correctly the first time.

When a strategic sourcing project team faces a "point of no return" decision, there is often a standard review that requires either the entire team or the procurement representatives on the team to demonstrate that they have done the proper research and analysis to justify the decision. The decision and some amount of supporting data are presented to an executive, who asks additional questions to make sure that all competing alternatives have been thoroughly investigated.

The more visible and traceable these decisions are, through the completion of standard reports or templates, the easier it is to walk someone outside the process through the entire project end-to-end after the fact. If a company is to make a sizeable investment as a result of the decisions made during a strategic sourcing project, the rationale behind those decisions should be evident to anyone else in the organization and stand up to close scrutiny.

Kelly Barner is the co-owner of Buyers Meeting Point, an online resource for procurement and purchasing professionals. She has been an industry award-winning supply management practitioner and consultant, and is now an independent thought leader and author on procurement, sourcing, and purchasing. She is co-author of Supply Market Intelligence for Procurement Professionals: Research, Process, and Resources. Kelly earned her MBA from Babson College.

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