Sourcing Decisions: How To Support Them
PurchTips - Edition # 195
By Charles Dominick, SPSM
What Do Good Sourcing Recommendations Include?
When you are leading a sourcing project but the ultimate decision is going to be made by an executive not involved in the day-to-day sourcing activity, you must be able to provide a recommendation that addresses the executive's interests.
What are executives interested in? To simplify it, profits and risk. So, your recommendation should answer the questions: "Why is this sourcing decision the one with the most favorable effects on our organization's profits?" and "Why is this sourcing decision the one that represents the least risk for our organization?"
When addressing profits, you can point out any of the following that apply:
- How the recommended supplier's price is lower than other alternative suppliers
- How costs beyond just price (e.g., energy usage) are lower than those of alternative suppliers
- How your organization can be more efficient (e.g., require fewer employees) by choosing the solution of the recommended supplier as opposed to those of alternative suppliers
- How your organization may increase revenue more by choosing the solution of the recommended supplier as opposed to those of alternative suppliers
When addressing risk, you can point out any of the following that apply:
- How the recommended supplier is more financially stable than alternative suppliers, using widely-accepted ratios of financial health
- How the recommended supplier has more market share in your specific industry and, therefore, is more likely to be able to handle any challenges that are unique to your industry than alternative suppliers
- How the recommended supplier has proven its ability to perform through real-world case studies, trade publication articles, references, and other forms of evidence
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