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Apr 9, 2017

Everything you always wanted to know about sourcing – part three


I have to admit that writing this sourcing blog-series felt like conducting my own personal knowledge sourcing process. Even though my current procurement mission with Cirtuo software deals with introducing a mature strategic infrastructure first and foremost, I actually did spend most of my professional career in sourcing, trying to bring together tactical agility with strategic foresight. So, these blogs have been a great opportunity to condense that experience in just three blogs and key takeaways. Hopefully, some of you have found it useful to differentiate between different types of sourcing and typical traps that buyers fall into in PART 1 and some of may have found it interesting to read my take on how to write a concise RFI in PART 2. What we have left to bring this full circle is RFP, negotiation and recommendation process.

And now, let’s bring this sourcing show to its conclusion.

After you have made your big tender short list of potential suppliers based on the RFI outcome, it’s time to send out a Request for Proposal. The most practical thing that can occur here is that the RFP reflects your categories’ business requirements. Given the connection between business requirements, category strategy and the RFP, that doesn’t need to happen directly, but it is a natural fit. Hopefully, the business requirements are well defined in your Category Management efforts and ready to go. Just a little reminder, business requirements are determined based on the RAQSCI model, which means you’ll be looking at requirements in this order: regulatory, assurance of supply, quality, service, cost and innovation. And of course, each company will assign a different percentage of importance to each of these mandates. This is also where you connect strategy with tactics and make sure your future suppliers fit like a glove to your company goals. Not to mention that when you formulate your RFP according to business requirements, maybe you’ll see that cost doesn’t occupy a 100% of the company’s priority.

Once you have all your ducks in a row, the logistics consists of an introduction letter, RFP instruction document, specifications, norms and a pricing sheet. And we are more than glad when procurement automation makes this process easier, faster and more efficient. Basically, in the near future it is to expect that computers / robots will do this by themselves.  If you have any additional questions regarding the structure of these documents, please feel free to ask me in the comment section. Also, just this week I came across a very succinct article that deals with why wouldn’t suppliers want to reply to your RFP by Robert Handfield entitled Red Flags that Every Supplier Business Development Team Knows to Look For. It’s important to see the other perspective in order to have a transparent process which doesn’t waste anybody’s time.

Then, after you have received RFP replies and seen what everybody brought to the table, it’s time for what this video humorously showed:

Negotiation – Traditional Procurement DNA

This video is such a procurement inside joke and a lighthearted depiction of what would happen when you release trained negotiators into the wild. Negotiation training is something that organizations often invest in. Even though it is important, my personal approach and recommendation favors a foundation of quality preparation, fact-based analysis and encouraging supplier motivation, which is then directed towards a selected few potential suppliers.

An industry proven tracking negotiation system and something you can do as tactics preparation is to make a table that contains price, quality, service, contract and payment terms and then write down next to each item what are your Most Desired Outcomes (MDO), Least Acceptable Agreements (LAA) and Best Alternatives to a Negotiated Agreement (BATNA) – a very well known tactic developed by the Harvard Program on Negotiation. What this kind of plan does is make sure that the buyer is ready in any scenario with a well-thought counter offer.

Once the bids are analyzed, supplier scorecard then shows how each supplier fares according to your requirements.

One important side note, if it is possible, it’s invaluable to have internal clients present when talking to new suppliers. That is how fear of the unknown is alleviated and confidence builds to make the necessary changes.

Recommendation & Business Case

What needs to be addressed before making an educated recommendation is to identify an optimal savings/risk combination for the company.

A valuable additional document to include is a supplier implementation scenario, i.e. what would happen if your recommendation for a new supplier or an incumbent supplier under new conditions goes through. It’s important to calculate potential savings for at least a year or more.

Then what is left is to conduct a final checklist that you have done all the necessary steps that address all the criteria for deliverables. And then you have a full-proof, fact-based analysis to assemble a final business case that serves as a basis for implementation. Unfortunately, business cases are still rarely done in this process, but they are an incredibly valuable core to drive expectations of internal clients and approve implementation.

And finally, the last part of the sourcing saga is here for you to use. Hopefully, I was able to translate what benefits big tender or type A sourcing can have for a company and to provide some strategic tips and tricks to maximize your sourcing efforts. I will be returning to my exclusive strategy preaching soon enough…

If you want to keep up with industry insights, be sure to follow Cirtuo’s LinkedIn page

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