If you conduct your sourcing as a market basket or product alone and you’ll leave value on the table.

September 19th, 2013

In today’s age of big data, if you don’t have it in readily usable format your competition will eat your lunch.

Today’s post is by Ron 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. In today’s age of big data, the relationships of these items one to another or their affinity is also important although not necessarily well understood. An example would be why someone buying baby diapers might also be buying beer and chips and how that may influence sourcing decisions.

As such it is the uniqueness of these individual market baskets that should concern business owners when they develop their sourcing strategy. This applies as much at an individual shopper level for a retailer as it does at the business to business level.

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 they sell or use most frequently. A market basket approach to sourcing where everything is lumped together will never 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 possible 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. It is also important as to your supplier strategy in terms of who to invite to participate, such as specialty suppliers or regional suppliers within certain deciles of spend.

Sourcing using market baskets combined with sourcing based on deciles as well as strategic unit sourcing will achieve the best overall results over time. To learn more please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments.

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