Strategic sourcing involves developing a proactive, holistic, and continuous evaluation and re-evaluation

of the sourcing activities in an organization. It aims to achieve the lowest Total Cost of Ownership (TCO)
along with minimal supply chain risk. To accomplish this, strategic sourcing leverages spend analysis,
supplier evaluation, supplier relationship management, and detailed market research.

Tactical sourcing involves a short-term and traditionally reactive approach towards managing the
sourcing activities of an organization. It aims to achieve the lowest possible cost without considering
other factors like supplier relationship management, supply chain risk mitigation, etc. Compared to
strategic sourcing, tactical sourcing doesn't necessitate large investments in advanced technological
platforms and personnel skillsets.
7 steps of Strategic Sourcing process

1. Understanding the category

2. Know the supply market
3. Develop a sourcing strategy
4. Select a suitable sourcing process
5. Selecting a supplier and negotiating terms
6. Implement and integrate
7. Reporting and tracking results

1. Understanding the category

What are the current quantities or services being sourced, what types, and what sizes? Who are the
end-users, where are they located, what are the logistics used and who else is involved? Spend visibility
is the key to understanding the category and commodities in it. Data must be sorted, cleansed, and
analyzed and finally, validated..

2. Know the supply market

Study the cost elements that make up the product or service, also called cost drivers. Analyse key raw
material prices and other cost elements such as labour and transportation. Do a deep dive into the
external marketplace to look for potential new global and local suppliers. Find out what real alternatives
there are to the current suppliers.

3. Develop a sourcing strategy

Deciding on how and where to buy while minimizing risk and costs is the challenge. strategy chosen
must be the one that is most suited to your business requirements and to your capabilities and
resources, A cross-functional project team involving all stakeholders, not only end-users and subject
matter experts (SMEs), is recommended.

4. Select a suitable sourcing process

The most common method in strategic sourcing is to use a Request for Proposal (RFP). RFPs must clearly
define the specifications, include the delivery and service requirements, legal terms and conditions.
Cloud-based software solutions are used extensively to facilitate and to speed up sourcing and
contracting.

5. Selecting a supplier and negotiating terms

Contract management is more efficient and easier to manage using software solutions that automate
many parts of the process. The process of selecting a supplier includes conducting multiple rounds of
negotiations with suitable short-listed potential suppliers. The final selection of the chosen supplier
must be based on the pre-agreed criteria. The contract must be drafted and signed by both sides.

6. Implement and integrate

Ensure that the supplier, internal end-users and everyone affected are involved in the design and
implementation of the solution. Smooth implementation is only possible with extensive communication
and a strong focus on change management.
7. Reporting and tracking results
Monitoring of purchases made ensures that full value is being achieved from a contract. Failure to do
this will not only mean lost savings but will promote the practice of "maverick" spending. Technology
solutions applied to the tracking of savings will identify when and where the supplier is adding value.

Contract Drafting

1) An Initial conversation with the client and inputs on which contract is necessary
2) Gather the client’s requirements as per predetermined framework
3) Conversations for factual clarifications while you draft the contract(if needed)
4) Draft the contract and share it for review (3-6 hours in case of simple to moderately difficult
contract)
5) Receive the client’s comments on email, or team meetings on the draft
6) If the other side requests changes, then there will be more iterations here
7) Share the final draft
8) Provide execution related support to sign the contract (stamp duty, registration, apostille
electronic execution and other advice)

Source to Contract : Source-to-contract refers to the collective set of procurement processes adopted
when sourcing products or services. The process begins with analyzing the product or service
requirement and developing a sourcing strategy. It advances to the request for quotation and contract
negotiation phase before finally awarding the contract to a suitable supplier.

1. Spend Analysis
2. eRFx
3. eAuctions
4. Supplier Base Management
5. Contract Management

Procure to Pay

1) Identify needs
2) Create requisitions
3) requisition approval
4) Create PO
5) Purchase order approval
6) Good receipt
7) supplier performance
8) Invoice approval
9) Vendor payment
• Commodity spending trend report
• Supplier spending trend report
• Preferred supplier compliance report by commodity
• Spend concentration report by commodity

The compliance report shows approved spend for each category. The concentration report shows the
vendor fragmentation for each commodity being sourced. Based on these two reports, key commodities
were identified as candidates for savings

Savings can be generated by

1. Price rationalization
2. Supplier consolidation
3. Purchasing Leverage
4. Part Rationalization
5. Maverick spend reduction
6. Manage unleveraged spend
7. Analyzing spend with common vendors to leverage combined purchasing power
8. Analyzing common commodities and leveraging purchasing power by rationalizing vendors so
that no overlap occurred
Vendor Performance Management KPIs
 Legal compliance
Use of ethically sourced material
Risk & Compliance
Contractual and policy adherence

Invoices and product received match the purchase order (PO)

Payment terms
Competitive pricing

How often prices change

Cost
Cost per invoice and PO

PO and invoice accuracy and cycle time

ROI
Materials of the proper grade and value to meet production
criteria
Quality No or low returns due to product defect or poor quality

Defects and breakage

Lead times
On-time deliveries

Delivery Ability to scale

Defects and breakages

Purchase order lifecycle time

Financial stability
Customer service and prompt communication

Complaint resolution
Relationship
Commitment to growth and feedback

Partnership mindset

Innovation and continuous improvement orientation

Cost of Goods (COGS) Sold Inefficiencies can drive COGS to unmanageable levels and reduce
as a Percentage of
Revenue
Dock-to-Stock Cycle Time
in Hours for Vendor
Deliveries
Vendor Transparency
sales. Exposure to financial risks may prevent the company from
paying its liabilities on time.
This metric measures the productivity and speed for stocking.
Minimizing these timeframes reduces issues that can occur further
down the supply chain to increase on-time shipments and
customer satisfaction.
ompanies want and need to know the details about their vendor’s
supply chains. Material traceability and sub-supplier information
are essential to ongoing production and legal reporting.

Supplier Evaluation.

● Visiting the supplier on-site

● Asking a series of probing questions about the supplier's business
● Fact-checking
● Researching customer opinions of the supplier

most widely accepted checklist for supplier evaluations is Ray Carter's 10Cs Model

● Capacity (Does the organization have the capacity to deliver the order)
● Competency (Is the organization, its people or its process competent)
● Consistency (Does the organization produce a consistent output)
● Control of process (Can the organization control its process and offer flexibility)
● Commitment to Quality (Does the organization effectively monitor and manage quality)
● Cash (Has the organization got a strong enough financial base)
● Cost (Is the product or service offered at a competitive price)
● Culture (Are the supplier and buyer cultures compatible)
● Clean (is the organization ethical, funded legitimately, doesn't engage Child labor, etc.)
● Communication efficiency (Does the organization have support technology of information
integration)to support collaboration and co-ordination in the supply chain.)

The Supplier Management Process

1) identifying the set of business goals and objectives

2) Identifying relevant selection criteria for choosing suppliers
3) Evaluating and selecting suppliers
4) Negotiating and Contracting with the selected supplier(s)
5) Evaluating supplier performance
Strategies to Improve Supplier Management

1) Implement Supplier Information Management

2) Create KPIs to Measure Supplier Performance
3) Collaborate with your Suppliers for effective Supplier Relationship Management
4) Evaluate Supplier Risks and Identify Mitigation Measures

Supplier Performace Management: The process of evaluating, measuring, and monitoring

supplier performance and suppliers’ business processes and practices for the purposes of reducing
costs, mitigating risk, and driving continuous improvement

Commonly Tracked Metrics

1. Inventory Levels
2. Fixed Manufacturing costs
3. Average cycle times
4. Scrap and revowrk
5. variable manufacturing costs
6. Product Profitibility
7. Finished goods quality
8. raw material quality
9. Demand variance
10. Manufacturing line scheduling visibility
11. Performance of key production assets
12. Supplier on-time delivery in full
13. Statistical process control

Corporate Objectives Supplier Strategies

Reduce cycle time Suppliers implement cycle time reduction techniques.

Reduce Product cost Value engineering with suppliers Implement lean enterprise
methodologies.

Reduce service cost Low-cost-country outsourcing

Improve service to customers. Put service level agreements (SLAs) in place with suppliers

Improve customer satisfaction. Suppliers implement quality at the source

Cost avoidance is the preservation of existing spending to prevent price increases due to inflation,
economics or the rising costs of products or services. An example of cost avoidance is when a
company purchases an extended equipment warranty to limit maintenance costs or out-of-pocket
expenses.

Supplier Evaluation

1. Screening
1. Establish grade -ISO 9001 Quality Management systems in place
2. Non-critical/ Critical Items -revenue/company in business for 10 years
3. Minimum baseline -revenue of at least $100,000.
4. Pre-qualification criteria -incumbent supplier, any risk factors, with this we can
remove outliers and exceptions suppliers.
2. Scoring
1. Set total marks -100 marks
2. Set factors -revenue, experience, quality, cost, service, lead time, etc.
3. Marks for each factor -divide 100 marks by the total number of factors.
4. Rate and sum -will rate the supplier on each factor based upon divided
marks and sum up. We can compare all the suppliers to select the highest-rated one.
3. Weighted Scoring
1. set total marks
2. set factors
3. marks for each factor.
4. factor weightage -based upon the importance of factors, raw material- cost ,
lead time, capital expenditure - warranty, and after-sales service.
5. rate
6. sum product

supplier selection criteria.

1. Business size -revenue, production

2. Business type -primary product, secondary product, by product, new product,
experimental product
3. Financial status -revenue, average order value, single highest ordre value
4. Past-experience -learning curve, available formats, SOPs
5. Past client references -recommendations, repeat orders, duration of association
6. Rights and license -transfer of rights, ownership of IP, use license of IP, Limited use
license of IP
 7. Technical competence -equipment, talent, processes(SOPs)
8. Capacity -nature of product, value of Inventory, high cost low volume or low
cost high volume to understand supplier POV
9. Warranty -corporate warranty or performance bond, Logistics, time period,
spare parts, labour charges, etc
10. After sales -service & support, quality of support or any extra support required
11. Management Approach-QMS, ERM, Industry certifications
12. Life cycle cost -Low upfront cost- high recurring cost, High upfront cost- low
recurring cost

Types of contracts

1. Fixed price
1) Lump-sum (to provide a complete scope)
2) Fixed-rate/unit
3) Plus Incentive( related to performance and measurement criteria up to x% of cost)
4) with economic adjustment. (protect both from market price fluctuations: inflation,
price index, etc)
2. Cost plus
1) Fixed fee ( cost is reimbursable, Fee is fixed)
2) Fee (no cost or fee is fixed).
3) Incentive (related to performance and measurement criteria up to x% of cost &
saving availed by the buyer, referred to as ” incentive sharing”)
4) Award fee (not related to performance criteria, solely depends on the buyer)
3. Time & Material (I.T and expert service industry-oriented, scope, time and required material
are not defined, consultant/experts hore on hourly/daily rate, not to exceed clause is there.

Contract Documents

1) Letter of Intent ( to express interest of purchase, prior to finalization contract)

2) Unilateral contract (Purchase order)
3) Bilateral contract (Contractual agreement, Long term projects, types of contract)
4) general supply conditions ( all terms & conditions )
5) Memorandum of Understanding ( assurance like preferred supplier status)
Contract Terms and Conditions

1) Statement of work or scope of supply

1. product or service
2. technical and performance requirements.
3. Incoterms
4. for engineering procurement: grade of raw material, construction method, industry-
standard, qualification, and so on.
2) Price and payment terms
1. The breakup of the price & tax components
2. Item wise price or lump sum depending upon contract
3. payment tied up to delivery in smaller purchases
4. advance payment or credit period is involved.
5. payment tied to progress milestones in longer time frame contracts
3) Milestones: defining stages of procurement
4) Timeline of deliveries: for different batches or quantities of material, like weekly, biweekly, or
monthly as per planned progress/ storage, or production capacity.
5) Incentive & fine: incentive for early delivery & LD for delay or non-compliance of safety
standards
6) Time frame of the contract: Duration of the contract.
7) Limitation of Liability: transfer of ownership of materials as per Incoterms
8) Insurance: type of insurance, compulsion and scope of buyer or seller
9) Warranty: scope and extent of warranty
10) Installation & service: pertaining to set up, Installation & trial of product
11) After-sales: commitment of after-sales service & spare support
12) Inspection & acceptance: arrangement of inspection & deliverable acceptance criteria
13) Performance bonds: Unconditional financial bonds for performance guarantee
14) Performance reporting: types of report-progress report, items covered in each & frequency
15) subcontractor qualification & approval.
16) Change handling: a spectrum of changes and procedures of handling
17) Termination arrangement: on default or mutual agreement, payment to be made, ownership
of the material, handover of deliverables, all should mention in contract termination arngmnt
18) Dispute resolution: procedures, preferred dispute resolution-ADR, & applicable jurisdiction.
INCO terms 2020- transfer of liability- total 11 - commonly used 06