Implementing Strategic Sourcing Recommendations (Part 2)

Spend Matters welcomes a guest post from Mason Lee, a Manager of Sourcing and Procurement Practice at Archstone Consulting.

In my first entry on implementation, I explored phase I of the implementation process -- mobilizing the organization. In this entry, I will discuss the critical elements of phase II -- execution. The process steps in this phase are geared toward deeply engaging your suppliers to effectively manage through the transition.

5. Supplier Kick-offs

A kick-off meeting sets the tone for the new supplier relationship in both organizations. Kick-offs can take many forms, ranging from business unit specific face-to-face events to large forums where all successful suppliers are introduced to your organization at once. The common thread in all approaches is that they should include cross-functional support from company and supplier. Sourcing alone is a recipe for failure.

The effort exhausted in preparing for kick-offs will correlate directly with implementation results (e.g. faster implementation with less savings "leakage"). A well-executed kick-off can jumpstart an implementation and literally be worth millions of dollars (due to speed of transition). For implementations involving highly engineered products or multiple business units, preparation may last several weeks. Your objectives in should include:

  • Agreement on transition timing, priorities (by part, service, or business unit), and resources
  • Establishing preliminary performance metrics
  • Determining initial transition goals and milestones
  • Creating cross-organizational communication matrices and protocols
  • Continuing to build executive level relationships at the supplier
  • Setting the date for the first alliance review

During planning, one final consideration should be whether to hold an internal kick-off event prior to bringing in the supplier. Internal kick-offs are typically half-day sessions involving all those slated to participate. The purpose is to review the kick-off materials and game plan, gain alignment, and ferret out any internal dissent so there are no surprises when the supplier arrives.

6. Phase In/Out

As the block and tackle activities of any implementation effort, the goals of the phase-in/out implementation step are somewhat diametric: maximizing the speed and realization of benefits of the transition while zealously protecting continuity of supply. Phase in/out is characterized by frequent meetings of the operational elements in both organizations, setup, configuration, qualification and testing activities, as well as risk management. Critical success factors at this stage include dedicated resourcing, established communication channels, formal tracking of performance metrics, and careful monitoring for any risks to continuity of supply. Companies will find it helpful to create a regular cadence of internal/external communications and to standardize transition status reporting across suppliers.

7. Supplier Management

The final stage of implementation is laying the groundwork to initiate a supplier relationship management (SRM) program. The objective at this point is to not only protect the benefits obtained through strategic sourcing, but to grow the overall value of the new relationships through continuous improvement efforts. A well-defined and resourced SRM program is one of the primary tools used to accomplish this. The value can be significant; the Hackett Group's 2011 SRM Performance Study illustrated that companies with top performing SRM programs can realize benefits in excess of 3% of spend from SRM. Effective supplier relationship management programs will be articulated by an overall strategy and governance, stratify the supply base to prioritize resources, and include processes for performance management and supplier development. Supplier score-carding and quarterly business reviews can be used as a quick start to this process. For more information on SRM, visit some of Archstone's previous Spend Matters posts here and here. Beyond SRM, category management can drive additional value, refer to Archstone's post on category management here.

The approach I've described above and in Part 1 provides a framework for you to develop your company's implementation process. One of the hallmarks of an effective strategic sourcing organization is the diligent, rigorous, and consistent application of a standard strategic sourcing process. By applying that same discipline and quality of process execution to implementation, companies are far more likely to realize the bottom-line benefits they worked so hard to identify.

- Mason Lee, Manager of Sourcing and Procurement Practice, Archstone Consulting

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