The sourcing process covers the collection of requirements, development of supplier questionnaire or RFx document and a list of suppliers to invite to bid, the publishing of the request, supplier response receipt, evaluation of responses, short-listing and final selection of the supplier. Methods used include supplier questionnaires (e.g. RFI), formal bids (e.g. RFQ or RFP) and regulated public posting.
However, industry analysts estimate that labour intensive processes account for 12% to 15% of the sourcing cycle and consume as much as 30% to 50% of a commodity manager's time.
Organisations are often constrained by offline and labour-intensive methods and localised decision making. They find it difficult to collect requirements from end users, rules that govern the process are complex and the task of evaluating supplier responses is paper intensive. The result is a low percentage of spend being strategically sourced and a high percentage of negotiated savings remain unrealised.
How does your organisation compare? Ask yourself these questions:
- How many tenders/RFQs are raised per anum, per FTE?
- How many new sourcing events do you expect this year?
- Do you have a consistent sourcing approach - can you describe it?
- Are sourcing activities implemented at the local level only - often involving a price-only metric?
- How do you target the right suppliers in sourcing & RFQ's?
- How do you accurately identify and address policy non-compliance?
- How do you manage capacity across your team?
- Are all purchases made in line with these agreements?
In order to support a best value sourcing strategy, technology is also required to automate and control the process and ensure transparency. This includes providing:
- Sourcing controls including process templates with workflow incorporating: dated activities and milestones (completion of questionnaire, closing date etc.), sub-event activity for division of labour and milestone and schedule management
- The ability to automate the management of RFx questionnaire design, electronic publishing, response management, scoring, valuation and contract award to be able to do 'more for less'
- Other items like quotation management and OJEU integration (if you're in the public sector), may be required, and
- eAuctions that support a multi-parameter process (based on price, quality, delivery) and iterative bidding, electronic process and revision of bids for certain types of sourcing events.
Typically, the opportunity for return on investment is high (and not just through process efficiencies). Consider a company with £100m of spend and 5 full time equivalent managing procurement and conducting sourcing events manually. If only 30% of spend on goods and services is currently strategically sourced and 13% savings is typically achieved through better negotiations. By placing a further 10% under management and using the same resource can deliver £1.3m savings.
Naturally, there are a number of external factors to consider and of course many other cashable and non-cashable savings opportunities:
- Consolidating the supplier base to achieve volume discounting
- Increasing supply in categories where there is exposure to risk
- Increasing the number of purchases made on the company's own terms and conditions versus the suppliers
- Exploiting automation to free-up managers time to focus on value-added activities like supplier performance reviews, etc.
Download this free "15 minute health check" guide
to perform a high level assessment of your sourcing process; identify issues and their causes, and understand how this is impacting performance. Common issues we often find include:
- Overspending - Spending more than necessary because purchases are not competitively sourced
- Supplier risk - Suppliers may be unable to perform and bring unexpected liability
- Manual intensive activities - Considerable manpower required for sourcing events
- Inconsistent processes - Sourcing events are inconsistently executed
- Transparency - Inability to show a fair and methodical approach has been used
This guide will help you to evaluate whether your current sourcing process warrants further investigation, without the need for a time-consuming and expensive full-scale analysis, and provide you with a tool to initiate conversation with the relevant people in your organisation.
Start your "15 minute health check" today