Leading product companies are looking for every possible edge to compress timelines to bring products to market ahead of the competition. At the same time, procurement professionals must accomplish more with fewer resources while maintaining a continuous supply of raw materials and components. Attaining the right good at the right time, place, quality, terms, cost, and risk level has never been more challenging.
Shortened product commercialization timelines are pushing professionals to develop new creative processes stressing earlier interaction with potential supply partners. New streamlined supplier sourcing assessments (enabled by information systems) are allowing for more efficient and effective acquisition of needed information on suppliers. The result? Better and more timely sourcing decisions.
Increasingly more complex products, coupled with compressed go-to-market timelines are squeezing time allotted for supplier sourcing assessments. Industry and competitor challenges can place additional pressure on selecting suppliers based on lowest cost alone. Limited production capacity across many industries is requiring the engagement of a larger number of potential supply partners due to higher levels of no quotes. Procurement teams at many companies are stretched thin, limiting their ability to request, review, and follow up on all needed supplier sourcing assessment detail, and curbing their ability to execute true strategic procurement. Companies low eProcurement system adoption rates and a general lack of utilization by both buyers and suppliers limits standardized data request and attainment. The art of balancing data requested with the upside of further reducing risk by having the additional data is key to cost-effective supplier sourcing assessments.
Key Considerations for Supplier Sourcing Assessments
Supplier sourcing assessments are a specific type of supplier assessment, one conducted to acquire and analyze data on potential suppliers to ultimately recommend sourcing. Leading companies establish a cross-functional team, often called a Sourcing Board, to review and approve final sourcing recommendations. Assembling a strategic procurement roadmap can further aid efforts in mapping out allotted time for each step from component design to supplier identification, allowing team collaboration and improving timeline execution. Standardizing sourcing tools into a decision matrix (an overall sourcing package of information that is presented to make sourcing recommendations) can streamline operations. Requesting and collecting information early in the supplier engagement process via supplier capabilities assessment templates will expedite the procurement process. The below supplier sourcing assessment action items will aid your efforts in sourcing suppliers with the lowest total cost of ownership.
Action 1) Determine Strategic Fit
When comparing suppliers, determining supplier strategic fit via quantitative metrics and associated scores reduces supply risk. Supplier engagement is one area that can be crystalized by assigning scores to specific actions to quantify the level of supplier commitment. Specific supplier collaborative behaviors such as: do they invite a plant assessment? respond in a timely manner of 1-2 days? meet deadlines for proposals? are all interactions that can be scored. Ideally suppliers are solution focused, understanding needs first and then determining the best way to solve the need, recommending technical specifications, materials, and processes. Supplier management involvement and interactions are a separate and critical metric to assess during a sourcing assessment. Critical supply opportunities include those that are a large percentage of spend, critical, safety-related, and have limited alternatives. It is important that these opportunities have positive supplier management scores.
Action 2) Analyze Commercial Proposal & Terms
Determining the supply partner with the overall best commercial proposal and terms starts with requesting and attaining a standard set of commercial requirements. Directional pricing, a basic piece price proposal, can be used to assess competitiveness and is often provided in early supplier interactions with: a new supplier, expedites programs, or in prototype purchasing. Detailed quotes are received on supplier’s letterhead or via eProcurement systems and include greater detail for: engineering, tooling, equipment, component piece price, and testing costs. Since costs vary depending on volume, ask for quotes at different volume breaks up front to save follow-up time later. Net Present Value (NPV) calculations should be used for all supplier quote comparisons including both total program life; engineering, tooling, equipment, and component costs. Terms should be carefully analyzed in every proposal, specifically payment terms, terms and conditions, manufacturing lead times, shipping terms, and technical specification exceptions.
Action 3) Ensure Long Term Competitiveness
When under pressure to quickly source a supply partner, it can often seem frivolous to consider long-term supplier competitiveness. However, true strategic procurement requires that long-term competitiveness be considered to mitigate supply risk. A supplier’s product development innovation capabilities are key to competitiveness. Process control from both manual processes and information systems, specifically change point control documentation, is a critical consideration. Customer demand, delivery, and scheduling are critical considerations as electronic data interchange (EDI) and radio frequency identification device (RFID) real-time data exchanges become baseline requirements for many industries. The safety record of a supplier is a sound indicator of future results, but documentation and current processes must also be thoroughly reviewed to assure ongoing safety.
The key to consistent sourcing success is to request and analyze the right level of information at the right time in alignment with supply-need criticality. Leverage propagates results, so improving strategic procurement process efficiency provides more time to obtain more than a best practice three quotes, to acquire additional inputs, and to negotiate further with suppliers. Determining strategic fit ahead of conducting site visits will save valuable time and resources. Acquiring the appropriate level of commercial proposal and terms for each supply opportunity will expedite timelines. Ensuring long-term competitiveness takes discipline to look beyond immediate benefits, but will protect long-term supply. Our experience has proven that a robust repeatable process for supplier sourcing assessments drives enhanced supply performance and de-risks supply.