Strategic Sourcing: The Seven Critical Success Factors NAPM Denver ...
Strategic Sourcing: The Seven Critical Success Factors NAPM Denver April 15, 2010 Presented By: Diane Brown, C.P.M. Diane Brown Consulting 303-809-8277 [email protected] All materials in this document may not be reproduced or utilized without the written consent of the author
1: Know what Strategic Sourcing is… • Strategic sourcing is a proactive, iterative, collaborative process that consistently reduces the total cost of externally purchased materials and services over time All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
2
What is Strategic Sourcing? • Characteristics • • • •
Numbers-driven Collaborative Internally and Externally Focused Milestone and Metric Based
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
3
The Strategic Sourcing Process Step Step2:2:
Step Step1:1:
Opportunity Opportunity Assessment Assessment
Internal Internal Supply SupplyChain Chain Analysis Analysis
(2-6Weeks) (2-6Weeks)
(2-6 (2-6Weeks) Weeks)
Analyze Spend Segment Spend Analyze Suppliers Review Contracts Analyze Inventory Review Org. & Dept. Goals Identify & Analyze Stakeholders Mobilize Team Develop Communication Plan
Identify Demand Drivers Review Specifications Analyze Policies/Procedures Map & Analyze Processes Identify & Quantify Cost Drivers Implement Communication Plan
Step Step3:3:
External External Supply SupplyMarket Market Analysis Analysis (2-6 (2-6Weeks) Weeks)
Quick QuickHits Hits
Analyze Industry Identify Viable Sources of Supply Research Leading Practices Identify External Cost Drivers
“Desired”
“Current”
Gap Analysis Step 4: Step 4:
Sourcing Strategy Documentation Sourcing Strategy Documentation (2-4 Weeks) (2-4 Weeks)
Confirm Scope Prioritize Improvement Opportunities Develop Implementation Plan Develop Communications Plan
Step Step5:5:
Strategy Strategy Implementation Implementation (4-6 (4-6Weeks) Weeks)
Complete RFI Process CompleteRFP RFIProcess Process Complete Complete RFP Process Establish Performance Establish Performance Metrics Metrics Contract Negotiate Negotiate Contract Develop Supplier Relationship Plan DevelopTransition Supplier Plan Relationship Plan Develop Develop Transition Plan
Step Step6:6:
Transition Transition&& Integration Integration
(4-6Weeks/Ongoing (4-6Weeks/Ongoing)) Implement new processes Implement new processes Implement new systems ImplementSupplier new systems Implement Implement Relationship Supplier Plan Relationship Plan Measure Performance Measure Performance Monitor Compliance MonitorRelationship Compliance Conduct Conduct Relationship Reviews Reviews Objectives for Determine Determine Next IterationObjectives for Next Iteration
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
4
2: Know your numbers….. •
Spend Analysis • • • •
True spend Directionally correct Identification of the largest manageable scope for each sourcing opportunity Validation of current plan
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
5
2: Know your numbers….. • Direct Materials and Services • Indirect Materials and Services
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
6
High Relative Annual Spend Low
3:Competitive Know what yourStrategic numbers mean… • Comparable market advantage • Can have longer lead-times • High unit cost /High volume • Multiple sources of supply
Common
Unleveraged
• No marketing advantage due to design differentiation • Off-the-shelf, commercially available • Readily substituted • Low unit cost/High volume • Many sources of supply Low
• Competitive market advantage • Long-lead time • Technically complex • High unit cost /High volume • Few sources of supply
• Competitive market advantage • Long-lead time • Technically complex • High unit cost/low volume • Few sources of supply
Supplier Interchangeability
High
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
7
Relative Annual Spend
High
3: Know what your numbers mean… Competitive
Minimize total cost throughout product life cycle Common
Product differentiation
Unleveraged Minimize number of items in category
Low
Minimize cost of acquisition
Strategic
High
Low Supplier Interchangeability
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
8
3: Know what your numbers mean… • ….and where the real opportunities exist
All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 9 author
4: Understand where you are and where you want/need to go…. • Internal and External Focus • • • • •
Strategic Direction Processes Supplier Analysis Market Intelligence Supply Market Intelligence
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
10
4: Understand where you are and where you want/need to go…. Value Creation
Supply Base Management
Purchase Demand Management
Reduce Consumption
Consolidate Demand
Eliminate need
Leverage spend Common Specification Co-operative purchasing
Change Specification
Common spec for volume benefit
Low Cost Supplier
Increased Competition
Acquisition Cost Management
Relationship Restructure
Logistics/ Transportation
Make/buy
Inventory
Supplier development
Transportation cost Packing
Process Fit
Leverage supplier capabilities
Scale/ Utilization
Long Term Contract
Global sourcing
Bid-based renegotiation Benchmarking
Lower cost spec
World Class Operations
DFM
Acquisition/ Transaction
Transaction Costs … purchase to pay … expediting Design/ Development Rationalization - part count - supplier Tooling
All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 author 11
5: Build collaborative relationships….. • • • •
Sourcing Team Sponsors Stakeholders Suppliers
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
12
5: Build collaborative •Influential Informed/Need to Know •Neutral relationships ….. •Not Influential •Unsure
Involved/Impacted Approves
Commodity Team
•Supportive •Neutral •Not Supportive •Unsure All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 author 13
6: Actively Manage The Process… • Create a plan • Manage the plan
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
14
7: Track your progress… • Milestones • Metrics • • • • •
Focused Strategic Meaningful Measurable Time-based
• Communicate All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 15 author
Summary
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
16
Strategic Sourcing: The Seven Critical Success Factors 1. 2. 3. 4.
Know what strategic sourcing is Know your numbers Know what your numbers mean Understand where you are and where you want/need to go 5. Build collaborative relationships 6. Actively manage the process 7. Track where you are All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 17 author
1: Know what Strategic Sourcing is… • Strategic sourcing is a proactive, iterative, collaborative process that consistently reduces the total cost of externally purchased materials and services over time All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
2
What is Strategic Sourcing? • Characteristics • • • •
Numbers-driven Collaborative Internally and Externally Focused Milestone and Metric Based
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
3
The Strategic Sourcing Process Step Step2:2:
Step Step1:1:
Opportunity Opportunity Assessment Assessment
Internal Internal Supply SupplyChain Chain Analysis Analysis
(2-6Weeks) (2-6Weeks)
(2-6 (2-6Weeks) Weeks)
Analyze Spend Segment Spend Analyze Suppliers Review Contracts Analyze Inventory Review Org. & Dept. Goals Identify & Analyze Stakeholders Mobilize Team Develop Communication Plan
Identify Demand Drivers Review Specifications Analyze Policies/Procedures Map & Analyze Processes Identify & Quantify Cost Drivers Implement Communication Plan
Step Step3:3:
External External Supply SupplyMarket Market Analysis Analysis (2-6 (2-6Weeks) Weeks)
Quick QuickHits Hits
Analyze Industry Identify Viable Sources of Supply Research Leading Practices Identify External Cost Drivers
“Desired”
“Current”
Gap Analysis Step 4: Step 4:
Sourcing Strategy Documentation Sourcing Strategy Documentation (2-4 Weeks) (2-4 Weeks)
Confirm Scope Prioritize Improvement Opportunities Develop Implementation Plan Develop Communications Plan
Step Step5:5:
Strategy Strategy Implementation Implementation (4-6 (4-6Weeks) Weeks)
Complete RFI Process CompleteRFP RFIProcess Process Complete Complete RFP Process Establish Performance Establish Performance Metrics Metrics Contract Negotiate Negotiate Contract Develop Supplier Relationship Plan DevelopTransition Supplier Plan Relationship Plan Develop Develop Transition Plan
Step Step6:6:
Transition Transition&& Integration Integration
(4-6Weeks/Ongoing (4-6Weeks/Ongoing)) Implement new processes Implement new processes Implement new systems ImplementSupplier new systems Implement Implement Relationship Supplier Plan Relationship Plan Measure Performance Measure Performance Monitor Compliance MonitorRelationship Compliance Conduct Conduct Relationship Reviews Reviews Objectives for Determine Determine Next IterationObjectives for Next Iteration
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
4
2: Know your numbers….. •
Spend Analysis • • • •
True spend Directionally correct Identification of the largest manageable scope for each sourcing opportunity Validation of current plan
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
5
2: Know your numbers….. • Direct Materials and Services • Indirect Materials and Services
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
6
High Relative Annual Spend Low
3:Competitive Know what yourStrategic numbers mean… • Comparable market advantage • Can have longer lead-times • High unit cost /High volume • Multiple sources of supply
Common
Unleveraged
• No marketing advantage due to design differentiation • Off-the-shelf, commercially available • Readily substituted • Low unit cost/High volume • Many sources of supply Low
• Competitive market advantage • Long-lead time • Technically complex • High unit cost /High volume • Few sources of supply
• Competitive market advantage • Long-lead time • Technically complex • High unit cost/low volume • Few sources of supply
Supplier Interchangeability
High
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
7
Relative Annual Spend
High
3: Know what your numbers mean… Competitive
Minimize total cost throughout product life cycle Common
Product differentiation
Unleveraged Minimize number of items in category
Low
Minimize cost of acquisition
Strategic
High
Low Supplier Interchangeability
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
8
3: Know what your numbers mean… • ….and where the real opportunities exist
All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 9 author
4: Understand where you are and where you want/need to go…. • Internal and External Focus • • • • •
Strategic Direction Processes Supplier Analysis Market Intelligence Supply Market Intelligence
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
10
4: Understand where you are and where you want/need to go…. Value Creation
Supply Base Management
Purchase Demand Management
Reduce Consumption
Consolidate Demand
Eliminate need
Leverage spend Common Specification Co-operative purchasing
Change Specification
Common spec for volume benefit
Low Cost Supplier
Increased Competition
Acquisition Cost Management
Relationship Restructure
Logistics/ Transportation
Make/buy
Inventory
Supplier development
Transportation cost Packing
Process Fit
Leverage supplier capabilities
Scale/ Utilization
Long Term Contract
Global sourcing
Bid-based renegotiation Benchmarking
Lower cost spec
World Class Operations
DFM
Acquisition/ Transaction
Transaction Costs … purchase to pay … expediting Design/ Development Rationalization - part count - supplier Tooling
All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 author 11
5: Build collaborative relationships….. • • • •
Sourcing Team Sponsors Stakeholders Suppliers
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
12
5: Build collaborative •Influential Informed/Need to Know •Neutral relationships ….. •Not Influential •Unsure
Involved/Impacted Approves
Commodity Team
•Supportive •Neutral •Not Supportive •Unsure All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 author 13
6: Actively Manage The Process… • Create a plan • Manage the plan
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
14
7: Track your progress… • Milestones • Metrics • • • • •
Focused Strategic Meaningful Measurable Time-based
• Communicate All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 15 author
Summary
All materials in this document may not be reproduced or utilized without the written consent of the author 4/16/2010
16
Strategic Sourcing: The Seven Critical Success Factors 1. 2. 3. 4.
Know what strategic sourcing is Know your numbers Know what your numbers mean Understand where you are and where you want/need to go 5. Build collaborative relationships 6. Actively manage the process 7. Track where you are All materials in this document may not be reproduced or utilized without the written consent of the 4/16/2010 17 author
