http://academyforprocurementexcellence.com An effective sourcing strategy is the way to make a breakthrough in your efforts to reduce costs and encourage innovation and continuous improvement in your supply chains. The foundation of an effective sourcing strategy is to get the scope right. This article shows you how.

1. Procurement
Matters
A series on effective Procurement for Professionals
Part 1: How to set the scope of your sourcing strategy
The scope of your sourcing
strategy determines what
you can and can’t consider
when creating your
sourcing strategy.
The scope (along with the
business requirements we
cover in the next section) is
probably the most
important part of what you
do in preparing a sourcing
strategy.
Get this wrong and the
possibility of achieving a
breakthrough result (one
which delivers cost
reductions of 15%, 20%,
30% or even more and one
which delivers improved
service quality and
innovation) will be greatly
reduced.
The starting point is to
decide how to define the
category of what you are
sourcing.
Here is an example of what
I mean...
Suppose you are going to
market for a cleaning
contract to service a
number of offices. You will
get a price which may, or
may not, be better than the
one you are currently
paying.
If you add to the scope
other facilities related
services such as
gardening, security or
maintenance then you are
increasing the value of the
contract and so your
leverage in the marketplace
... but this may have to be
balanced by the fact that
you may be potentially
reducing the number of
capable suppliers.
But how about going
further?
You may decide that you
want to outsource the
whole of your property
management – or even sell
and lease back your
property portfolio. This will
dramatically increase the
value of the contract and
take you into a different
league of potential cost
savings but will also
increase the complexity of
the procurement and the
range and number of
stakeholders who need to
be involved, adding
significant time that is
needed to arrive at a
solution that is acceptable
to everyone.
Even if you decide that this
is the scope that you want,
there may be another
alternative that adds even
more value.
How about selling off your
property portfolio and
buying in a service in which
the supplier provides a
defined office space per
person together with
everything that person
needs to perform their job –
heating, lighting, furniture,
telephone, computer and
so on. All at a cost per
person but with the
requirement that you may
want to flex this up or down
over time depending on
your business needs. The
onus is on the supplier to

2. sell surplus capacity in the
office building.
This changes a fixed cost
to a variable cost so that
your costs are more closely
aligned with your needs.
Eliminating the waste that
comes with having excess
office space can yield
dramatic results. As well as
potentially reducing all of
the associated costs such
as furniture if the supplier
can bundle your
requirements with those of
other clients and go to
market with a bigger
volume than you can on
your own.
Other questions you can
ask in order to define the
scope of the strategy
include the following.
Are there any geographical
boundaries that need to be
considered? This may be
the result of supply market
capabilities (for example,
the technology you need is
not available in certain
parts of the world) or
because of your
sustainable procurement
strategy (for example, not
to buy from areas that
have a reputation for
employing child labour).
What time period should
the strategy cover? For
example, if the supplier will
need to make an invest-
ment in equipment in order
to fulfil the contract, the
time period will need to be
long enough for them to
recover that investment
cost and still achieve your
price target.
Are there any organisation-
al boundaries that you
need to consider? For ex-
ample, part of the scope
that you are considering
may already be covered by
a collaborative agreement
with other organisations
and you are contractually
bound to honour this.
The output from this
process of defining the
scope should be a simple
statement of no more than
one or two sentences.
Here are some examples:-
All residential care homes
in the county; or
IT maintenance that in-
cludes all laptops, printers
and multi-functional devices;
or
All grades of boron, carbon
and high strength steels for
manufacturing plants in Eu-
rope.
What this cleaning contract
example shows is that by
considering the capability
that you are sourcing
instead of the narrow
product or service definition,
you can generate options
that substantially increase
the value of the category.
In the example, we did this
by thinking about the
capability as being the
management of the working
environment.
This led us from a very
narrowly defined service
(cleaning) to produce
options that include
outsourcing the
management of your
property portfolio. The
result is more options for
creating a breakthrough in
your cost reduction plans.
Then download my free booklet “57 Top Tips for Sourcing
Strategies” by going to ...
http://academyforprocurementexcellence.com/sourcing-tips/
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