Sourcing strategies- steps and development

Step One: Understand the Spend Category

The first step in the sourcing process is to understand the spend
category. There are five major questions purchasing managers must
answer when defining their spend category. It’s vital to consider the
following in as much detail as possible:

1. What is the Sourcing Category?

2. What are the Characteristics of that Category?
3. What are the Outcomes of Our Process Review?
4. Have We Inspected and Reviewed the Marketplace?
5. What is the Key Cost Driver?

Step Two: Supply Market Assessment

Purchasing managers must be aware of the vendor’s market and the
challenges they face. Understanding representation and the major
market players will help you to understand the power of different
suppliers, and therefore how much competition there is.

Shrinking markets, more vendors, industry intensity, and general

competitiveness all determine bargaining power.

Through understanding the vendor’s market environment, buyers are

better positioned to negotiate the best deal on their purchases.

Step Three: Collect Supplier Information

The next step involves looking into specific vendors. Understand
how they operate and whether they can meet your needs.

It’s strongly recommended that companies organize in-person visits

to ensure industry compliance.
Step Four: Develop the Sourcing Strategy
The most common option for sourcing strategies is the Request for
Proposal (RFP), which actively solicits bids. It’s also wise to
implement a Request for Information (RFI) to narrow down existing
shortlists.

RFPs should be extremely well-defined and come with strict

specifications. Cloud-based procurement solutions can speed up the
sourcing process.

Step Five: Negotiate and Select Suppliers

The fifth step in the 7 step sourcing process involves negotiating
with different suppliers. Larger companies will typically host
multiple rounds of negotiations.

To facilitate the signing of a contract that specifies buyer and seller

expectations, contract management software should be deployed to
automate the process.

Step Six: Communicate and Implement

Ensure that everyone involved in the delivery process has the
means to communicate and collaborate. Smooth implementation
can only occur when everyone understands their role in the process.

This is where strong communicators demonstrate their worth.

Step Seven: Benchmarking

Benchmarking is the final step in the 7 step strategic sourcing
process and involves ensuring that the vendor meets the
specifications set out in the contract.

Companies must implement full monitoring of purchases and

delivery to ensure there are no lost savings or overspending.
Much of this can be automated through innovative, cloud-based
dashboards. If there are any signs that key milestones will be
missed, it’s important to communicate with the vendor immediately.

This final step is where many companies burst their budgets and
compromise their key goals.

Conclusion
The 7 step sourcing process plays a vital role in helping
organizations meet their overall business goals. A flawed sourcing
plan can derail a company and turn a profitable brand into an
unprofitable brand,

Much of the strategic sourcing process can be automated and

streamlined using specialist cloud-based software.

Guidelines for choosing Outsourcing Partners

1. Define a clear scope of work

Before you start reaching out to potential outsourcing partners write a clear scope of
work document. It’s your responsibility to decide business goals, what is it that your
business needs and what could be the best possible solution to achieve your desired
outcomes.

If writing a scope of work document is too technical for you at the beginning, then
you can also start by answering some simple questions like

 What is your exact need?

 What could be the best potential solution for that?

Answering these two simple questions will help you identify the problem you’re
solving, prepare a clear roadmap for solving that particular problem and identify your
overall business goals.

It’s important for you to understand that outsourcing isn’t a plug-and-play proposition
but an approach used for a specific effect. Nobody knows your business better than
you. Expecting an outsider to promptly have the same level of familiarity as you isn’t
really fair to the outsourcing partner either.

In simple words, you cannot share vague requirements with your outsourcing partner
like “create a mobile app that our customers will love” or “introduce something new in
our web app” and then expect the best outcomes.

The key takeaway is, if you want to yield the best results possible, you need to be
extra specific in terms of what you want to build.

2. Make expertise an important criteria in the hiring

process
After writing the scope of work document, you can start reaching out to prospective
outsourcing partners. Once you shortlist three to five vendors, you need to evaluate
them based on the following factors:

 Technical expertise
 Skillsets
 Access to the latest technology
 Experience in solving complex challenges
 Passion for your project

Remember, technical expertise, even though is often overlooked, is crucial for the
success of any outsourcing deal. Therefore, you should never choose an
outsourcing partner who has expertise in limited technologies, even if they’re best in
those few technologies.

The general rule of thumb is, the more software technologies an outsourcing partner
has expertise in, the better the quality of your project will be.

3. Market reputation is equally important

No business can afford to compromise on quality. But more importantly, no business
can also afford to work with a partner who always misses deadlines or is not polite to
work with. Therefore, it is equally important to check the market reputation of your
outsourcing partner before signing an agreement.

In today’s internet-connected world, it isn’t difficult to check the history and reputation
of an outsourcing partner. There are even platforms like Clutch and GoodFirms, for
example, where you can check out their past clients’ reviews.

If there are still any doubts, you can always connect with a few of their past clients
and note their experience working with the outsourcing partner. In any case, you
should only hire an outsourcing partner if you’re fully convinced that the selected
vendor has a good market reputation, can align well with your business goals and
has a track record of delivering on time.
4. Communicate clearly about budget
Cost is one of the most underlooked factors that can ruin not just your relationship
with an IT vendor, but also your project. If you expect superior services from an
outsourcing partner, then you must also know that superior services often cost
higher than the average.

Before approaching an outsourcing partner, you need to figure out and finalize how
much money you are willing to invest in your project and communicate clearly about
your budget with the selected outsourcing partner.

5. Protect your data and intellectual property

In today’s digital era, privacy and data security are two of the biggest concerns,
especially for businesses. When you outsource a project, you will often find yourself
sharing sensitive business information with the outsourcing partner.

If such sensitive information is not managed properly, then your data can be
mishandled. It is highly recommended that you sign a nondisclosure agreement with
the selected partner before sharing any sensitive information.

Apart from this, you must also consider hiring a vendor who regularly conducts
network and security audits in their workplace. They must be using specific tools that
will help in protecting all your sensitive data and prevent any data leaks from
happening.

6. Use Agile methodologies in your development

process
The only way to survive in today’s market is by accommodating customers’ always-
changing requirements. To accommodate the changing needs of your customers,
you have to utilize Agile methodologies.

Agile methodologies offer a highly-collaborative environment and give quick results.

If you want to be a leader in your industry, prefer to hire a vendor who follows Agile
methodologies so that they can easily adapt to changing requirements of your
customers.

7. Choose a flexible partner

Flexibility is also important when choosing an outsourcing partner for your
project. Your selected outsourcing vendor must be flexible enough to serve any
urgent requirement or problem when arises. Flexibility, in fact, is especially critical
when you and your partner are in different time zones. You must include flexibility in
terms of urgency and support in the agreement before finalizing them.