What Drives Procurement and Sourcing Complexity? An Extract from our New Paper

Last week we launched our new briefing paper, sponsored by sourcing technology firm Trade Extensions, and titled  What defines complex sourcing – and why does it matter? You can download the paper here, free on registration.

We explained then that there is merit in looking at how complex a particular sourcing area or task is, and considering what synergies and benefits might be gained by looking at sourcing complexity as a key driver of resources, structure and approach.

The paper then goes on to identify nine factors or characteristics that define a complex sourcing exercise, task or process. Three of these are what we can define as internal factors, such as the number of internal stakeholders who are interested in the particular category. Then there are three external factors, including the number of suppliers operating in the particular market and supply constraints

Finally, we have three factors driven by the particular commercial models that are desired and possible. Here is an extract from that section of the paper, explaining those three drivers of complexity.

Supply chain options

Where there are different tiers to a supply chain, complexity is increased. So for example, consider a major printing requirement, which could include purchase of the paper, the actual printing, then a logistics related set of tasks (storage, handling and perhaps even distribution for the final product). What is the best way to source this requirement? Aggregate the different aspects of the supply chain into a single contract, or source the different elements separately?

Historically, buyers have had the choice of aggregating but then restricting the market options, as few suppliers could do the entire package of work; or splitting the requirement which increases the volume of work for the buying organisation and procurement function. But intrinsically, this type of sourcing is complex, or, to turn that around positively, presents opportunities to drive value and advantage if the buyer uses a tool that allows them to source all of the elements of the supply chain separately and simultaneously.

Pricing models

If suppliers are required or allowed to make complex offers in terms of costs and prices, then this increases complexity. So this might be driven by the complexity of the market or requirement to some extent, or by the desires of the buyer or suppliers, but it may end up with quotes, bids or tenders that have multiple elements; or volume related price breaks; or pricing that is time variable. All can generate complexity, certainly in terms of how that sourcing and supplier selection process is executed.

Options for conditionality

A somewhat more subtle complexity arises where the nature of the requirement allows or invites suppliers to make conditional offers . So a supplier may wish to put forward various "if... then" type offers. "If you buy more than 500 tonnes of wheat, we will offer a discount on all your purchases with us across different products". Or perhaps "if you give us at least 10% of your volume in Germany, we will hold prices for three years". This is yet another case where much conventional sourcing practice has actively discouraged suppliers from making such offers because of the difficulty in handling and assessing such proposals, simply because of the complexity that is introduced to the process.

 

You can download the full  paper here, free on registration.

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