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The Strategic Sourcing Process Using Data Analysis In 7 Steps: The Best Way For Unsurpassed Supplier Results

For medium and large businesses, strategic sourcing is a crucial process that demands extensive data to select the perfect supplier. In fact, a data-driven approach to your strategic sourcing process is essential for success. Delving deep into data analysis enables you to make well-informed decisions when it comes to choosing and evaluating suppliers. Furthermore, monitoring supplier compliance, performance, quality, and potential supply chain risks can be achieved by continuously analyzing data. 

Explore with me in this article as we uncover and examine the indispensable role of data analysis within each of the seven steps involved in the strategic sourcing process. First, it is important to review what Strategic Sourcing is. I like this definition: 

“a procurement process that creates efficiency across all activities within the procurement cycle to secure the best possible price for a product or service. Most importantly, the main objectives are to save money and improve the acquisition process, supplier performance, and minimize risk.”

Now let’s explore each step of the strategic supplier process from a data analytics perspective.

First, Profile Your Sourcing Categories: Analyze Your Current Spend In The Sourcing Process.

The supply chain sourcing handshake - the strategic sourcing process

When it comes to strategic sourcing, profiling the sourcing category is a crucial first step. This involves analyzing your current spend in the sourcing process. The focus of this analysis is to identify areas where cost savings can be achieved. So by understanding your spending patterns and identifying areas of inefficiency, you can develop a more effective sourcing strategy that delivers better results. From a data spend analysis perspective, here are some examples of data points to consider.

  • Collating Spend Analysis Data. Many times analyzing spending is a challenge due to the tasks of gathering, cleaning, and categorizing data. A lot of times this data is in different internal systems, incumbent supplier’s systems, or in Excel documents.
  • Long-term Spend Profile. Here you look at your historical spending data, future spending forecast, and identify any significant changes in your industry. Specifically, your analysis is to identify potential impacts to your procurement needs. Also, it is key for you to categorize the product and service data. This will enable you to prioritize and compare spend of these product categories throughout the strategic sourcing process.
  • Vendor Risk Profiling. Here you do risk analysis associated with each of your current suppliers. For instance, this can include factors such as financial stability, compliance with regulations, and track record of delivering quality products and services. Additionally, this profiling may identify areas where suppliers can be consolidated or services streamlined.

Second, Do A Market Analysis: Analyze Your Buying Power And Product Critically As Part Of Your Sourcing Process.

The second step of the strategic sourcing process is marketing analysis. This step is critical to understand your buying power and product critically. This analysis involves researching the market trends, identifying potential suppliers, and assessing their capabilities. From a data analysis perspective, this phase is key for gathering information. From a data analysis perspective, here are some examples to consider:

  • Supply Market Differentiators. You need to ask yourself what are the key differentiators in your supply market that can help you make more informed decisions and select the best suppliers for your needs. Also, you will need to gather and analyze data on factors like product cost, quality, and lead times. 
  • Structure of the Supply Market. Here you gather information and identify the key players in the market, analyzing market concentration, and recognizing potential barriers to entry. 
  • On-shore and Off-shore Capacities.  Evaluate both on-shore and off-shore capacities is vital for creating a flexible and resilient supply chain. This involves gathering information and assessing capabilities, lead times, and costs associated with various suppliers in different regions. See SC Tech Insights’ Offshore Vs Nearshore Outsourcing: 11 Practical Decision Factors for evaluating outsourcing options.
  • Stability of the Supply Market. Here you gather data and evaluate factors such as political, economic, and regulatory risks, as well as the potential for supplier disruptions due to events like natural disasters or geopolitical tensions.
  • Competitive Forces in Play. Here you need to gather information and evaluate factors like price competition, the level of innovation, and the bargaining power of both buyers and suppliers. 

Third, Develop Your Strategy: Determine Your Goals, Requirements, Criteria, KPIs.

Once you’ve conducted a market analysis, the next step is to develop your sourcing strategy. This involves determining your goals, requirements, criteria, and key performance indicators (KPIs). Of course, your goals should align with your organization’s overall objectives. Further, your requirements should specify what you need from your suppliers in terms of quality, delivery times, pricing, and other factors. Finally, your KPIs should measure supplier performance against your goals and requirements to ensure that you’re getting the best possible results. From a data analysis perspective, here are some examples of data points to consider:

  • Impact on Cost and Profit. You need analyze your data points and evaluate the potential impact of your hypothetical sourcing strategy on your organization’s cost structure and profitability. Specifically, this includes considering factors like the total cost of ownership, potential cost savings, and the potential for increased revenue through improved supplier performance or innovation. ‍
  • Assessing the Amount Of Data Needed During Supplier Evaluations. Recommend that you optimize your data requirements for an RFP based on what you and the supplier can reasonably collect and evaluate. Specifically, these data points include price structure, historical performance data, delivery and warranty conditions, product/service specs, and so on.

Forth, Determine And Implement Your Sourcing Process: Implement RFP And Analyze Potential Supplier Input.

After developing your sourcing strategy, the next step is to determine and implement your sourcing process. In particular, this involves creating a request for proposal (RFP) that outlines your requirements and criteria for potential suppliers to respond to. Once you receive responses from potential suppliers, you’ll need to analyze them for completeness and evaluate them against your criteria. From a data analysis perspective, here are some examples of data points to consider:

  • Pre-qualification Modeling. Create a set of criteria for pre-qualifying potential suppliers, based on factors like financial stability, quality performance, and compliance with regulations. By pre-qualifying suppliers, you can streamline your procurement process.
  • Geospatial Analysis. Many times credible suppliers and service providers can be in different time zones and continents. Here your analysts need to use geospatial analysis to analyze factors such as location, transportation costs, and geopolitical risks.

Fifth, Negotiate With And Select Suppliers: Analyze Responses For Completeness, Evaluate, And Select The Best Supplier.

The next step in the strategic sourcing process is to negotiate with and select suppliers. After analyzing responses from potential suppliers and evaluating them against your criteria, you’ll need to negotiate pricing and other terms with top candidates. Once negotiations are complete, you can select the best supplier based on their overall fit with your goals and requirements. From a data analysis perspective, here are some examples of data points to consider:

  • Conduct Due Diligence. Before finalizing your supplier selection, you need to do due diligence to verify the information provided by potential suppliers and identify any potential red flags. This may include conducting reference checks, reviewing financial statements, and verifying compliance with relevant regulations.
  • Final Review Of Contract and Risk Assessment. Once you’ve selected a supplier, it’s crucial to establish a clear and comprehensive contract that outlines the terms of your agreement, including expectations for duration of contract, quality, delivery, and pricing. Also, assure yourself that you have mitigated all possible risks with establishing this new supplier relationship.
  • Final Negotiations And Evaluation. In many cases, especially with a large organization, contract negotiation revolves around a large data set. For example for a multi-year transportation contract, these data sets can consist of millions of records that document your shipping activity for the last year. Many times, data modeling and what if analysis is needed. What is more, this data analysis may be needed both for the initial supplier evaluation as well as during the negotiation phase.

Sixth, Implement and Integrate Supplier: Establish Supplier Partnership And Implement Data Integration Strategy.

Once you’ve selected the best supplier for your needs, the next step is to implement and integrate them into your organization’s supply chain. This process involves establishing a supplier partnership and implementing a data integration strategy. Establishing a supplier partnership involves building a relationship with your supplier based on trust, communication, and collaboration. From a data analysis perspective, here are some examples of data points to consider:

  • Key Personnel Reliance. Identify any key personnel within your organization and the supplier’s organization who will be critical to the success of your strategic sourcing efforts. Establish clear lines of communication and ensure that these individuals are engaged and committed to the success of the project.
  • Institute Quality Management. Implement regular audits, and establish quality metrics in partnership with your vendor to assure you both have the data to measure the quality of products and services provided by the supplier.
  • Review Key Performance Indicators. Review and assure KPIs set up previously still make sense and can be measured. If not, take action to make changes to KPIs or implement actions to access necessary data.
  • Establish Necessary Data Interfaces. To monitor and manage the supplier relationship, you need visibility of all key procurement and services activities. If it is a new vendor, there may be several data interfaces like application programming interfaces (API) that your IT departments will need to set up. See SC Tech Insights’ Want To Integrate Data For Better Business Visibility? Here’s How To Do It for tips on data integration.

Lastly, Establish Benchmark KPIs And Monitor: Compliance, Performance, Quality, Risk.

After implementing and integrating your supplier, the next step is to monitor their compliance, performance, quality, and the risks that are particular to the supplier relationship. By monitoring these factors closely, you can ensure that you’re getting the best possible results from your sourcing process. Moreover, monitoring KPI and taking collective actions establishes an environment of continuous improvements. Also, keep an eye on emerging technologies and industry trends that can affect your suppliers’ relationships.

Additionally,  From a data analysis perspective, there are four essential factors to successfully manage suppliers. Specifically, this includes establishing and monitoring KPIs for suppliers’ contract compliance, service performance, and product quality. Also supplier management includes proactively collaborating with strategic supplier partners and collectively mitigating risks. For more specifics, see my article, Supplier Management: Optimize, Make Compliant, Assure Quality, Mitigate Where Risky

Supplier Management: Optimize, Make Compliant, Assure Quality, Mitigate Where Risky. Nearly every business relies on crucial suppliers, whether it’s a manufacturer supplying vital components, an IT firm overseeing your digital infrastructure, or a parcel carrier ensuring your eCommerce packages reach customers on time. Establishing and maintaining cost-effective contracts with such suppliers is only the tip of the iceberg. Indeed, it is essential that you have ongoing supplier management for fostering successful strategic partnerships. Click here to delve into the world of supplier management, examining its many benefits and the importance of utilizing data-driven key performance indicators (KPIs) and mitigating supplier risks.

For more information of strategic sourcing, see AllThingsSupplyChain’s The 7 Steps in the Strategic Sourcing Process, ControlHub’s Mastering the Seven Phases of Strategic Sourcing: A Comprehensive Guide, SupplierGateway’s Strategic Sourcing Process, and RFP360’s Procurement KPIs.

For more information from Supply Chain Tech Insights, see articles on Supply Chain.

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