PurchTips edition #105

Every strategic sourcing organization should have a long-term plan for its work. I suggest a three-stage plan.

Stage 1: “The Easy Wins.” When launching a new process, starting with little risk and gradually accepting more is wise. So begin your strategic sourcing initiative with a category where success is easier to achieve.

Office, shop, and janitorial supplies are often the first “easy wins” pursued. Why? Well, in these industries, there are many good suppliers who compete hard against each other. In many cases, any big supplier can perform. And the price wars you incite can produce nice savings.

Demonstrating that good performance and sizable savings can be achieved through strategic sourcing is vital – when a strategic sourcing initiative is announced, your internal customers aren’t exactly throwing confetti and high-fiving each other in the hallways. They are skeptical. Good results in Stage 1 will help your cause.

Stage 2: “Bread & Butter.” After the strategic sourcing concept is proven in Stage 1, then organizations tend to address their “bread and butte” – those products and services that are close to the core of what they are in business to do. In manufacturing, the bread and butter includes raw materials and subcontracted services.

Bread and butter categories are where big money is spent and where big money can be saved. But there’s also bigger risk, so you must perfect strategic sourcing before you mess with your organization’s core competency.

Stage 3: “Non-Traditional Categories.” So after a purchasing department gets through Stage 2 and saves the company tons of money, does the staff just sit back and revel in their success? Of course not! They now seek other opportunities to use sourcing to save money.

Stage 3 involves addressing categories that have been traditionally managed outside of purchasing. These areas include health benefits, advertising, travel, and fleet services. Identifying these areas and learning to work with your new internal customers is a challenge all to itself. We’ll address the challenges of sourcing non-traditional categories in a future edition of PurchTips.

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