NIGP3/29/2017

Jonathan WalkerOSP AD

STRATEGIC SOURCING

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What does “sourcing” mean?

What differentiates strategicsourcing from regular sourcing?

What’s In A Name?

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Identifying… user needs specifications suppliers critical T’s & C’s

Soliciting responses Negotiating pricing, T’s & C’s Awarding

What is “Sourcing”?

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High-level, long-term considerations,rather than immediate needs / processes

Overall agency*- or org.-wide focus

Taking a step back and looking outward for external factors that could affect the success of internal efforts

What is “Strategic”?

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Tactics:

We are going to take that hill by sending a platoon of heavy infantry up the northern slope downwind from the target at 0100 with fire support from 2 Apache gunships.

What question does Tactics answer?: HOW

Strategy vs. Tactics?

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Strategy:

We need to take that hill so that we can control the high ground, view the entire field of battle, counter enemy air support, reduce blind spots and enable our ground forces to advance quickly and safely.

What question does Strategy answer?: WHY

Strategy vs. Tactics?

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Which one is important in purchasing?- BOTH. (sorry)

Which one determines immediate success?- Tactics (usually)

Which one determines long-term success?- Strategy (usually)

Strategy vs. Tactics?

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“a method of managing procurement processes for an organization in which the procedures, methods and sources are constantly re-evaluated to optimize value, allowing the organization to buy more effectively and efficiently.” (OSP)

“a collaborative and structured process of critically analyzing an organization’s spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently.” (GSA & NASPO)

“an institutional procurement process that continuously improves and re-evaluates purchasing activities.” (Wikipedia)

so, Strategic Sourcing is…

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1. Structured analytical methoda) Analytical toolsb) Collaborative approachc) Re-evaluation of prior effortsd) Focus on procurement processese) Inclusion of expenditure analysis

2. Emphasis on efficiency, effectiveness

3. Continuous, ongoing improvement

Common Threads

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A. Take a Step Back

B. Identify Your Opportunities

C. Answer the 8 Questions

D. Examine Internal Sourcing Factors

E. Examine External Sourcing Factors

F. Identify Purchasing Power (SWOT)

G. Develop a Commodity Sourcing Strategy

1. Structured Analysis

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i. Strategic sourcing takes time

ii. Hurried/rushed SS is worse than no SS

iii. Time is typically a rare luxury in purchasing Very many needs Very few personnel Very fast timelines

iv. Get top-level, and end-user, buy-in early

v. Initiate process long before results needed

1.A. Take a Step Back

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i. Examine goods/services being sourced, and evaluate suitability for SS based on: Ad hoc approach – prioritize based on what’s to be rebid Interviews approach – prioritize based on user feedback Data-based approach – prioritize based on #, $ data

ii. How is the commodity (good/service) currently being sourced? How is this approach working?

iii. Where are the opportunities for big wins?(% and $ savings, other service improvements)

1.B. Identify Opportunities

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1) Who are the suppliers and end users for this?2) What problem are we trying to solve w/ this?3) When do we need this good/service available?4) Where do we fit in the market for this?5) Why have we done things the way we have?6) How would this need ideally be sourced?7) How much volume are we expecting to need?8) How much money are we willing to spend?

1.C. Answer the 8 Questions

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1) Current End Users (Demand) Organizations / Agencies Contact Persons Do they all have similar wants/needs in the category?

2) Current/Recent Expenditures Sources Agency expenditure reports (e.g.: LaGov/ISIS/P-Card) Vendor usage reports

Data Analysis Combine with uniform formatting, and consistent time period(s) Validate data to identify/remove outliers which could distort

1.D. Internal Factors

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1) Current Suppliers How many suppliers make up 80% of expenditures? Do they all provide equivalent goods/services? Do they all serve the entire service area, or only part? What are the pros/cons of maintaining multiple suppliers? Potential Pro: More variety of goods / services Potential Pro: More delivery coverage (geographic / online, etc) Potential Pro: Competition amongst suppliers Potential Con: Buying power fragmented and scattered Potential Con: Diminished incentive for vendors to perform Potential Con: Lack of consistency re products used, prices paid

1.E. External Factors

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2) Supply Market Conditions How many suppliers are active in this market? What is the annual value of sales in this market? Are the major vendors interested in selling to us? (why not?)

Who are the (other) major buyers in this area?How do their buying practices compare to ours?

Are there established best practices for this industry? Do PPI/CPI data indicate prices up/down/stable/chaotic? Does the industry appear to be heading in a discernable

direction? What can we do to get ahead of the curve?

1.E. External Factors (cont’d)

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1) Combine the Internal and External Factors to get a clear picture of how strong the agency’s buying power is in the market

2) Use SWOT analysis to craft commodity strategy Strengths: What are our internal advantages, strengths? Weaknesses: What are our internal blind/weak spots? Opportunities: What external factors are advantageous? Threats: What external factors might undermine us?

1.F. Buying Power / SWOT

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1) As with SWOT, the Kraljic Sourcing Matrix is useful for plotting how to approach the product:

1.G. Sourcing Strategy

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Impa

ct to

Age

ncy

Leverage

• High value items, widely available• Highly competitive market• National and regional suppliers• Example: Computers

Strategic

• High value items, not widely avail.• No true substitutes available• High product differentiation• Example: Software

Discretionary

• Low value items, widely available• Uniform, wide supply base• Low unit cost expenditures• Example: Office Supplies

Bottle Neck

• Low value items, not widely avail.• Product range differentiated• Low availability -> inconveniences• Example: Ammunition

Available Supply Capacity

2) Based on where the commodity fits, consider using the approaches that best correspond:

1.G. Sourcing Strategy (cont’d)

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Impa

ct to

Age

ncy

Leverage

• Leverage your full buying power• Substituting products/suppliers• Placing high-volume orders

Strategic

• Needs most attention• Can go wrong quickly• Develop long-term relationships• Consider providing internally

Discretionary

• Needs least attention• Use standardized products• Optimize order volume• Optimize inventory levels

Bottle Neck

• Over-order when available• Lock in supply priority

(preferential delivery order)

Available Supply Capacity

A. Consider evaluating the total cost of ownership

B. Consider whether the current/prior specs in use could be opened up to enable greater competition

C. If possible, consider whether a different solicitation method (RFP, ITB, bid, etc.) might get different results

D. Consider the (indirect) costs of putting bids and contracts in place when evaluating the direct costs of such contracts. Buyer time costs money

E. Effectiveness must come before efficiency, but both are important to long-term SS success

2. Efficiency, Effectiveness

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A. Strategic sourcing is an iterative process.

B. Strategically sourcing a good / service is not an excuse to not pay as much attention to it later.

C. The lessons learned during sourcing should be applied throughout contract negotiation & mgt.

D. Consider how vendors can be held accountable to meet end users’ performance expectations.

E. Look for win-win mutual incentive opportunities(e.g. tiered rebate based on program growth)

3. Continuous Improvement

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