Time and again, I’ve seen how crucial data analytics is in picking the best vendor for any strategic sourcing effort. Indeed without the right information, procurement professionals will pick the wrong supplier. As a result, this can ultimately bring about seriously harm to any business. Without a doubt, the strategic sourcing process is full of challenges, but good data helps procurement pros navigate these obstacles and find the best suppliers. So, it’s essential for companies to use a data-driven methodology for selecting and evaluating suppliers. Plus, ongoing data analysis helps keep tabs on supplier compliance, performance, quality, and supply chain risks.

In this article, I will examine the essential steps of the strategic sourcing process from a data analytics perspective. By identifying the necessary data to select your next long-term supplier, you can ensure that you have the right information to choose the best vendor for your business’s sustained success.

Before we get started, first, let’s review what Strategic Sourcing is. Here is a definition: 

Strategic Sourcing 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.”

So, strategic sourcing focuses on building long-term supplier relationships to improve the sourcing process, reduce costs, enhance service, and minimize risk. Indeed, strategic sourcing is an ongoing process that looks both externally and internally to ensure companies have the best suppliers to meet and exceed their goals. Below, I will examine each step of the strategic sourcing process from a data analytics perspective.

1. Take a Snapshot of Your Current Sourcing Profile.

First, analyze and Categorize Your Current Spend

When it comes to strategic sourcing, profiling each sourcing category is a crucial first step. Again, this is an on-going process, but this step is critical when starting a major procurement initiative. Specifically, this strategic sourcing step involves analyzing your current financial outlays within a particular spend category such as the cost of shipping or outsourced customer service spend. So, the focus of this analysis is to identify areas where cost savings can be achieved. Indeed, 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.

a. Collate Data to Analyze Your Spend.

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.

b. Update Long-term Spend Profile.

Here you look at your historical spend data, future spend 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. Positively, this will enable you to prioritize and compare spend of these product categories throughout the strategic sourcing process.

c. Relook and Update Vendor Risk Profiles.

Here you do a 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.

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2. Conduct a Market Analysis from a Sourcing Perspective.

Analyze Your Buying Power And Product Critically

The second step of the strategic sourcing process is marketing analysis. Positively, this step is critical to understand your buying power and product critically. To detail, 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. For instance, here are some examples to consider:

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a. Identify 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. 

b. Examine the Current 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. 

c. Evaluate the Market’s On-shore and Off-shore Capacities. 

Evaluating both on-shore and off-shore capacities is vital for creating a flexible and resilient supply chain. Specifically, this involves gathering information and assessing capabilities, lead times, and costs associated with various suppliers in different regions. See my article, Offshore Vs Nearshore Outsourcing: 11 Practical Decision Factors, for evaluating outsourcing options.

d. Determine Stability of the Supply Market.

Here you gather data and evaluate factors such as political, economic, and regulatory risks. Further, you analyze the potential for supplier disruptions due to events like natural disasters or geopolitical tensions.

e. Evaluate 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. 

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3. Develop Your Sourcing Process Strategy.

Determine Your Goals, Requirements, Criteria, KPIs

Once you’ve conducted a market analysis, the next step is to develop your sourcing strategy. Specifically, this involves determining your goals, requirements, criteria, and key performance indicators (KPIs). 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. Indeed, this will ensure that you’re getting the best possible results. From a data analysis perspective, below are some types of data points to consider:

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a. Optimize Your Strategy to Have a Positive Impact on Both Cost and Profit.

Here, you need to analyze your data points. From there, evaluate the potential impact of your proposed 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. ‍

b. Focus Your Data Requirements: Not Too Little, Not Too Much.

Recommend that you optimize your data requirements for a Request For Proposal (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. At the same time, keep your data requirements focused, not burdening either you or your potential vendors with unnecessary data gathering and processing.

Indeed, many strategic RFP processes focus too much on data collection and less on choosing the best supplier. Instead of asking each supplier hundreds of questions, there’s another approach that can simplify your RFP process and get the best vendor evaluation. This unique method uses a vendor-on-vendor assessment to gather honest information from each potential vendor about their competitors. This way, you can reduce the number of RFP questions and still get valuable insights from each vendor about their competition.

Positively, this method is particularly effective for acquiring critical information on evaluating vendors in such categories as 3PLs, SaaS, IT outsourcing, and consulting services. For more details on RFP vendor-on-vendor assessments, see my article, SaaS Vendor Selection: Better Ways To Secure The Truth From RFP Responses.

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4. 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 a proposal (RFP) that outlines your requirements and criteria for potential suppliers to respond to. Next, 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:

a. Implement 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. Indeed, by pre-qualifying suppliers, you can streamline your procurement process by only doing a detailed evaluation on pre-qualified vendors.

b. Conduct a 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. For more on outsourcing from a geospatial perspective, see my article, Offshore Vs Nearshore Outsourcing: 11 Practical Decision Factors That Will Help You Make The Best Decision.

Offshore Vs Nearshore Outsourcing: 11 Practical Decision Factors That Will Help You Make The Best Decision

5. Negotiate 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. So, after analyzing responses from potential suppliers and evaluating them against your criteria, you’ll need to negotiate pricing and other terms with top candidates. Next, 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:

‍a. 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. Specifically, this may include conducting reference checks, reviewing financial statements, and verifying compliance with relevant regulations.

b. Finalize 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’s more, this data analysis may be needed both for the initial supplier evaluation as well as during the negotiation phase.

b. Update Risk Assessment and Conduct Final Review Of Contract.

Once you’ve selected a supplier, it’s crucial to establish a clear and comprehensive contract that outlines the terms of your agreement. In particular, this should include 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.

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6. 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. Specifically, this process involves establishing a supplier partnership and implementing a data integration strategy. Further, 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:

a. Identify Key Personnel and Contacts.

Identify any key personnel within your organization and the supplier’s organization who will be critical to the success of your strategic sourcing efforts. Furthermore, establish clear lines of communication and ensure that these individuals are engaged and committed to the success of the project.

b. Institute Contract Quality Management.

For instance, implement regular audits, and establish quality metrics in partnership with your vendor. Indeed, this will assure that you have the data to measure the quality of products and services provided by the supplier.

c. Review and Update Key Performance Indicators (KPI) as Needed.

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.

d. 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 my article, Want To Integrate Data For Better Business Visibility? Here’s How To Do It, for tips on data integration.

Want To Integrate Data For Better Business Visibility? Here’s How To Do It

7. Establish Benchmark KPIs And Monitor as Part of Sourcing Process.

Key Areas Include Compliance, Performance, Quality, and 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. Indeed, 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 several key 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

For more information of strategic sourcing, see Kafil Saleem’s article, 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 Responsive’s Procurement KPIs.

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