Todays post is by Ronald D. Southard, CEO at SafeSourcing Inc.
Market basket sourcing has been around for a long time. Most of us are familiar with a market basket as something we see or use in a supermarket. Every market basket is made up of different items and different quantities of items based on the needs or desires of the individual consumer. The majority of the mix is based on use both planned and historical.
If we are talking about the consumer price index, that is determined by a fixed market basket that is made up of commonly purchased items across many consumer market baskets. In fact almost no consumer market basket ever matches or even comes close to matching these market baskets. As such it is the uniqueness of individual market baskets that should concern business owners when they develop their sourcing strategy.
Understanding the unique characteristics of products and their relationship to other products is key to understanding how to source those products. Just as retailers look at the their top deciles of customers and try to figure out how to get better wallet share from these groups by understanding the mix of the products they buy; businesses can look at the top deciles of the goods and services they buy to conduct their business and figure out how to get a better price for the items used most frequently. A market basket approach to sourcing where everything is lumped together will not accomplish the compression goals set in a companies sourcing strategy.
Sourcing based on the top deciles within a particular product category on an item by item basis not only drives the best compression, it also creates data relative to products and services where incumbents or awarded suppliers are not competitive. This data is extremely useful in setting next cycle strategies.
Sourcing using market baskets combined with sourcing based on deciles will achieve the best results. To learn more please contact a SafeSourcing Customer Services Account Manager.
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