Determining the right source, supplier
There were many suppliers or source failures at the start of the pandemic, and I observed a lot of panic within supply chains because of the consequences of sourcing predominantly from China and other parts of Asia that were on lockdown.
There were disruptions to manufacturing and, in some instances, temporary halts to the flow of goods. While the pandemic is seen as a rare (once in a lifetime) event, the challenges it created to global Supply Chains are not necessarily new; instead, it only highlighted existing vulnerabilities.
Selecting a source or supplier has never been more critical since the pandemic. Focusing on immediate value or benefits versus resilience over the long term may limit a business’s growth, and ultimately diminish its chances of survival.
The pressure of budgets, the attraction of low-cost options, and shortened lead times have driven many buying decisions. There are however time-tested tools for supplier/source selection which a skilled procurement resource will do well to consider.
Comprehensive sourcing strategies developed for items that make up 80 percent of supplier spend, and critical bottleneck categories are essential to achieving this. This document will contain the following among others:
Business need or objectives – what is the need driving the sourcing activity? What outcomes are expected from the process?
Spend analysis or trend –historical spend with suppliers over the last three years ranked in descending order.
Economic analysis – all the macroeconomic data that impact the category you are sourcing for.
Industry analysis or porter’s 5 Forces – a very analytical tool that shows the level of competitiveness in the industry, and what levers buyers can pull to shift the balance of power in our favor.
SWOT Analysis – a 360 perspective of our company and all the possible factors working for and against us.
Supplier analysis – information on all key suppliers for that item, whether we currently buy from them or not, and their willingness to do business with us.
Supplier portfolio analysis – how our vendors are classified from a Procurement perspective, and how we intend to treat them: Strategic, Bottleneck, Leverage, or Non-critical. This then feeds into our Sourcing choice model.
Sourcing plan – how we intend to approach the market; RFQ, RFP, Negotiations, et cetera, and the duration of our agreements.
Risk matrix or mitigation – all known risks that might occur in order of probability and value impact, and the agreed plan to prevent and/or address it.
Evaluation criteria – will be included as part of our bidding documents and it provides a clear “marking scheme” for how we will select our suppliers.
The Strategic Sourcing document contains other sections and should be valid for 3-5 years, with stakeholder alignment obtained at different stages of development, and signed off by key business leaders.
If time and effort are put into having this document for all major categories of spending your choice of supplier or source will be well informed.
Even with unforeseen incidents like COVID, our degree of confidence in their ability to thrive and continue to meet our needs will be quite high. We will also trust them as they trust us to be a reliable long-term partner.
Right source or supplier is one of the key deliverables of the procurement professional.