Developing and Implementing Supply Strategies

The basis of developing and implementing a supply strategy is to organize that strategy, tactics and management approach to effectively link them to the overall goals of the company.

The key segments to include in that strategy are risk to the organization, cost and value to the organization and the market complexity in the sourcing arena. Risk is the extent of negative outcomes if the good or service is of low quality, too expensive or becomes unavailable. Cost and value is usually measured in dollars but it could also have an intrinsic value as well.

Examples of high risk are those supply items that come from a single supplier while examples of low risk supply items would be things such as office supply items.

Low market complexity exists when there are many suppliers, excess capacity, standard specifications for products and possible substitute exist. High market complexity is the exact opposite, where there are few suppliers, restricted capacity, unique product specifications and no substitutes available.

For each of these environments there are associated vendor relationship strategies that can be utilized.

In those environments with low product value, low risk and low market complexity a transactional relationship method can be used. This method requires less communication, less supplier involvement and shorter contract lengths.

In environments with a high product value, high risk and high market complexity a collaborative relationship method can be used. In this method there is more communication and supplier involvement and typically involves longer contract lengths.

Over the years sourcing has become much more organized and employs a much more systematic approach while at the same time engaging the suppliers in a more collaborative way. It is organized in that it is now an ongoing enterprise process and systematic in that there is now an agreed upon process for sourcing within the organization.

This systematic process encompasses seven steps, Internal assessment of the company's sourcing needs, a supplier market assessment, gathering supplier information through supplier surveys, the development of a sourcing strategy, the solicitation and evaluation of bids, the negotiation with and selection of suppliers and finally the implementation of the selected sourcing strategy.

In many companies there has also been a shift from the traditional sourcing model with its focus on price and cost of ownership. This model is very process driven and utilizes well developed procurement skills. The shift has been towards a value based model which has a focus on value, the total contribution to ownership. It is strategic intent driven and utilizes sound business skills.

This means a focus on the greatest value to the organization rather than the greatest savings.

Ron_McAllister

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