Join the argument. Strategic Sourcing alive or dead? Part II of II.

September 20th, 2010

All the automation tools in the world are only as good as the data that feeds them. If you don?t have the data your strategy is flawed.

In Part I of this blog we posited that in order for a strategic plan to be successful there are certain elements organizations need to know. I?ll just list a few as an example.

1.?Your own company.
2.?Your Industry. Example: Retail.
3.?Your vertical within your industry.
4.?Your competition. Be careful.
5.?Your category.
6.?Your product.

So let?s assume that you have an e-procurement supplier that indicates they have great strategic sourcing tools that can evaluate your data and help you strategically build your sourcing plan which as a result would support your company strategic plan.

Let?s assume a tier two supermarket chain wanted to evaluate their total grocery category. Let?s just look at bottled water which is a sub category of the total grocery category. The first requirement is that they provide access to their sales and cost data. This may be easier said than done in the lower tier one and tier two markets. What is also required here is access to industry data. Data may indicate that their bottled water sales are 2.5% of their total grocery category, but what is the industry standard for this category? Are they already above the average?? Has their category grown year over year? Have industry category sales?? If they have access to both sets of data they have a start but who is their competition?? Are they comparing themselves to other supermarkets and should they be?? What about C-Stores, Drug-Stores, Liquor Stores and Mass Merchants that are close to their stores and get a share of category sales. Are they aware of these competitors category mix such as number of brands offered or private label offerings? All of this information is required for every category in the total grocery category. If they don?t conduct this analysis how would they begin to know what category to address first? The obvious choice is the category that is most out of norm with the industry average. But will sourcing that category have the best impact on the P&L and earnings.

Once this analysis has been completed, their e-procurement solutions provider should also have data that can guide them as to what month is the best month to source specific categories and what commodity markets are doing currently that may also have an impact on finished products.

After all of this is completed and categories are evaluated, ranked and prioritized they should then look for other elements that are incorporated in their company?s strategic plans such as CSR initiatives that support safety and the environment.

So, is strategic sourcing dead? This author does not believe so. However it is a process involving a lot of work, a lot of data, a lot of analysis and more than just tools in order to result in a strategic sourcing plan that can be implemented, scored and adjusted properly over time.

We look forward to and appreciate your comments.

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