When it comes to sourcing a particular category, there isn't a one-size-fits-all approach for achieving desired results. Sourcing a category such as office supplies may be as simple as selecting a market basket of high volume products, releasing the items via request for proposal (RFP), collecting responses, and awarding business to the most cost competitive supplier that aligns with company needs. More complex categories, however, take careful planning and execution to take products to market. Sourcing initiatives that prove to be more complex are categories with custom components that have been designed or engineered specifically for a company. This includes direct materials, such as custom electronic components as well as indirect materials such as custom printed packaging products.
Even if a sourcing event in a complex category is not in the pipeline, there are a few best practices that can be followed to ensure a successful for transfer of business should an interruption in the supply chain or an optimal sourcing opportunity arise.
1. Maintain strong communication channels between procurement and outlying departments.
Open communication is important throughout an RFP process as suppliers will be submitting a stream of questions surrounding the products in the market basket. While a liaison in the purchasing department may be able to answer questions around process or overall firm expectations, it will ease the process if the facilitator of the RFP is also confident in their knowledge of the needs of the departments with a stake in the initiative. In order to efficiently respond to a supplier’s more in depth inquiries, the procurement leads should know exactly who the department contacts are for each individual question area before an RFP is released. This level of communication should be maintained whether or not a change in purchasing needs has been identified.
2. Keep a detailed record of product specifications.
When it comes to sourcing custom products, a supplier can only submit pricing as accurate as the available specifications. If the drawings on file to not contain complete information, assumptions will need to be made either by the sourcing team or a participating supplier, and price adjustments will occur after the close of the initiative. This can lead to inflated pricing or the discovery that your selected supplier cannot meet the exact specifications required for a particular product. To avoid these roadblocks, store information in an accurate and easy to read manor. Make sure that all part revisions are carefully documented and product specifications are updated accordingly. Finally, ensure that you have full ownership of any design files associated with custom products so as not to risk a delay in process due to a supplier owning your specifications.
3. Keep a schedule of items in obsolescence.
If a product has a planned obsolescence date, this information is necessary for building out proper volumes within the market basket. If there are upfront non-recurring engineering costs involved in transferring the business, it is not worth the resources involved to source this item from an alternate supplier. Rather, the replacement product should be considered, despite purchasing not beginning until long into the future.
4. Keep an updated record of verified pricing.
When comparing market conditions to your current state, it is important that you have an accurate record of cost for the items being sourced. Especially in industries of constant fluctuation, having a consolidated record of last price paid will streamline your baselining process. Another important metric to track is the results of any special pricing agreements or rebate structures in place with current suppliers. Ensure that the actual price paid or rebate being received matches the language in the agreement, and adjust accordingly if this is not the case. This will lead to not only correct comparisons of price after a sourcing event, but also full compliance of the current supplier.
5. Track purchasing trends.
Keep a detailed record of how often you are purchasing items, and the volumes associated with each purchase order. When going to market with an item, purchasing frequency and average purchase volume will help suppliers determine how to provide optimal pricing based on minimum order quantity requirements and freight costs. If volume increases are expected based on predicted growth within a company, reflecting those volume changes will open opportunity for more competitive supplier bids. Diametrically, if a volume decrease is expected and not reflected in the market basket, suppliers may raise pricing based on a failure to meet minimum order quantities. It is not enough for those who work directly with the material being sourced to have an idea of the seasonality of the products, trends need to be tracked consistently and data needs to be shared with all involved parties.
The above best practices all focus on maintaining clear and consistent purchasing records and integrating these records with the most up to date product specifications. It is far too time consuming to gather this information directly before a sourcing event, and if procurement and outlying departments are unable to work together the items being taken to market may be inconsistent with organizational needs. Supply chain interruptions or immediate needs for cost reduction are not uncommon, and being prepared to take items to market efficiently and accurately will set you up for continued success.
Source One's Strategic Sourcing experts will be at ISM2016, where Source One is the exclusive sponsor of the Exec IN forum. Want to save on registration costs to attend this landmark event? Learn more over at SourceOneInc.Com.