Buyer Categories: Contracting

How a company realizes the benefits of strategic sourcing depends on its individual situation. This determines the type and degree of external assistance that is required—what products and services must be purchased or developed within the company for strategic sourcing. In general, buyers fall into three categories or situations: Contracting, Partnering, Self-Serving. This is the first of a three part series, if you will. We’ll attack the contracting category first.

Contracting

Companies or other entities in this situation are new to strategic sourcing or have only intermittent need for it. They do not currently engage in strategic sourcing or reverse auctions or use them only on a periodic basis. Typically, they have no system or infrastructure in place to conduct the necessary activities. In many cases, the buyer sees no need or is hesitant about expending the capital to build these resources. Therefore, in order to reap the benefits of strategic sourcing, these buyers contract the entire process and management to an external provider.

In this situation the vendor for strategic sourcing services is fully engaged with the customer to provide the necessary consulting and project management for the items to be sourced. The vendor consults with the buyer’s personnel to provide assessments, develop product or service specifications, qualify vendors, host the auction, and provide post award tasks as needed. The internal personnel respond to the consultant’s process. This format allows the procurement personnel to continue providing their normal level of service instead of acquiring the skills and building the resources necessary for strategic sourcing. Thus, their organization is able to reap the benefits without the capital investment. Generally, this service is provided by the contracting entity on a fee-for-service basis.

There are several critical issues in implementing a strategic sourcing program under these conditions:

• Strategic Consulting: the service vendor must have comprehensive knowledge of procurement, sourcing, purchasing, and the technology involved. The vendor must be able to provide the strategic consulting services necessary to implementing a successful program, including best practices, types of procurement tools suited to the particular situation, methods of improvement, and technology.

• Technical Prowess: the vendor must also have access to software that will meet the needs of the buyer and prospective suppliers for ease of use, clarity, security, information sharing, and robust hardware and software.

• Project Management: since the success or failure of the project depends to a great extent on how well it is managed, the vendor must have good management systems, and its employees must possess the necessary skills for project management, including the ability to interact with the buyer and potential suppliers, facility with the software and systems, and knowledge of the procurement process.

• Turnkey Systems: as the buyer has no infrastructure or internal resources devoted to strategic sourcing, the vendor is required to provide a turnkey solution that solves the problem for the buyer with regard to the specific items sourced. This includes all aspects of the strategic sourcing process.

• ROI: the cost of the turnkey system must be low enough relative to the expected savings to produce a strong return for the buyer. Since strategic sourcing will likely be done for discrete projects rather than on an ongoing basis, it is important that each use produce a positive return on investment.