Which Factors Do Not Define a Complex Sourcing Process?

complex sourcing

This post is based on content from a white paper authored by Spend Matters UK/Europe’s Peter Smith. Peter claims to be a procurement guy at heart and not a mathematician. But sometimes, we’re not so sure that he’s forgotten his formal university training! You can download the full paper here, even if you’re afraid of complex math: What defines complex sourcing – and why does it matter?

Before we get into what defines a complex sourcing process or initiative, it is instructive to consider what does not. That helps illustrate the issues and clears up some of the confusion that is often seen around sourcing exercises.

The size of the spend in itself is not enough to define complexity. If we were looking to contract for 10,000 tonnes of crude oil or some gold bars, the value of the contract could be enormous. But if the specification is clearly defined, and we are looking at a single delivery to a single point, then this is not a complex exercise. It might have elements of risk, and of course value for money is a key driver, but the sourcing exercise is not inherently complex.

The importance of what is being purchased to the buying organization is another factor that does not define complexity. A good example of this comes from monopoly supply-type situations. We might have some mission-critical software that is essential to our organization and where we are locked into a particular supplier.

That is not a good position to be in, and there may be some complex actions we need to take to extract ourselves from that strategic situation. But the actual sourcing of the software would in fact be remarkably simple, with no real supplier choice.

Similarly, risk factors in general do not define complexity. Risk may come from supply-side issues, unreliable suppliers, geographic or political factors and many other causes. But while there is a significant intersection here, a high-risk category or item is not necessarily complex, and a complex sourcing event is not necessarily high-risk.

Similarly, the urgency of the requirement does not determine the complexity. Whether the spend is mundane and not time-critical or needed as a matter of life and death does not determine complexity in the way we are considering it.

One point all of this does emphasize is how the Kraljic Matrix analysis does not help us to assess or indicate sourcing complexity. Peter Kraljic and those who have adapted his original work over the years models in his original Harvard Business Review article the markets from which purchases are made and suggests how the buyer might approach those markets depending on their power, supply security and the competitiveness of the market. But the quadrant of the matrix that a category or item might fit into tells us nothing about the sourcing complexity.

This obviously begs the question: Which factors do drive sourcing complexity? We’ll get to these in the next installment in this series. In the meantime, you can download Peter’s full analysis here: What defines complex sourcing – and why does it matter?

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