Implementing Strategic Sourcing Recommendations (Part I)

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

Many companies are becoming quite capable of designing and executing a stage gate strategic sourcing process and identifying savings (at least on paper). But in my experience, few companies have a standard, consistent approach for Implementation -- a process to convert those paper savings to bottom line benefits. In terms of the overall supplier lifecycle, strategic sourcing itself is really only a third of the effort. Implementing the negotiated agreements and managing supplier relationships between sourcing events comprise the balance. Because they involve complex relationships and organizational change, these two activities are arguably much more challenging and arduous than the sourcing process itself. A framework is needed for implementing recommendations developed from strategic sourcing processes. I've used the following approach with companies to realize great success. In my first post on this topic, I'll describe the process steps for the initial mobilization phase on an implementation effort.

1. Planning

Ben Franklin once said, "By failing to prepare, you are preparing to fail." Before embarking on any serious Implementation program, it is extremely important to allocate some time towards planning the roll-out. During the planning stages, one should consider and decide upon laundry list of items:

  • Legal requirements (i.e. the need for a contract)
  • Initial transition timing
  • Savings and implementation progress measurement methodologies
  • Savings and implementation targets
  • Communication strategy
  • Kick-off approach
  • Transition priorities
  • Testing & qualification requirements
  • Risk mitigation strategies

In the planning stage, involvement and buy-in from operations, engineering, quality, and executive leadership is essential for accelerating the Implementation program.

2. Agreement Conversion
Strategic sourcing processes often terminate with some form of negotiated agreement, albeit not always codified in an actionable document. Oftentimes, the terms of a negotiation are captured in documents like tenets of agreement (TOA) or memorandums of understanding (MOU), which are almost always non-binding. After planning, the next step is converting these terms into a formal agreement with suppliers. This may range from a non-binding supply agreement that clearly lays out the terms of the relationship to a legal contract. While offering enhanced protections, keep in mind that converting an agreement to a legal contract can take a long time (3-6 months to formal sign-off is not uncommon if you are dealing with large organizations). You can shorten this time if you've contemplated some of these requirements during sourcing. And you can usually move forward with implementation while some of these details are being worked out.

3. Internal Communications

Silent sabotage, the act of individuals or departments passively aggressively resisting an initiative, is inherent in all 'change' endeavors. But the problem can be particularly acute when changing suppliers (as long-standing relationships may need to be broken and operations altered). Symptoms of silent sabotage include new, never-before-mentioned business requirements cropping up, rejections for previously approved deviations, or general foot-dragging. An internal communication strategy can greatly help mitigate this issue and begin to mobilize the organization towards the transition effort. Elements of an effective internal communication strategy include: executive support, a focus on selling the benefits of the new agreement(s), and targeted messages to all impacted stakeholders. The concept of road show presentations (preferably in person and with executive participation) should be a cornerstone of the communication strategy.

4. External Communications

In addition to managing internal communications, a plan is needed for interacting with external stakeholders such as suppliers and customers. Suppliers who participated in the sourcing process but were ultimately unsuccessful need to be informed. The level of time, effort, and customization given to this communication process should be proportional to the suppliers' level of investment in the sourcing process (i.e. suppliers that made it to the final round deserve a phone call or face-to-face meeting). In these communications, I recommend focusing on the elements of winning proposals as opposed to strictly what a supplier did wrong. The concept of using a SPOC (single point of contact) to carefully manage these non-award communications is often helpful in controlling risk. To the extent possible, direct the organization to drive all communications regarding unsuccessful suppliers to one individual. While certainly not enjoyable to conduct, there is value in having these conversations with suppliers. Smart suppliers will take the lesson to heart and improve their offering for the next time you go to market. Additionally, if your new supplier stumbles for whatever reason, you may need to rely on one of these suppliers; your previous candor will go a long way in preserving this fallback option.

For successful suppliers, play the role of ambassador for your company and determine how to best connect the suppliers' personnel to the various stakeholders within your organization. You want to make it easy for the supplier to understand and communicate with your company. Common tools to consider include: company overviews the supplier can distribute to its personnel, announcement letters, facility lists, contact information sheets, and on-boarding training.

This completes the discussion on implementation mobilization. After working through these process steps, you should have signed supplier contracts/agreements, preliminary implementation plans, risk management plans as well as a communication strategy. Additionally, through step 3, internal communications, you will have engaged stakeholders broadly throughout your organization to secure alignment and buy-in on these deliverables. At this point, you are ready to engage the suppliers and begin the actual execution of your Implementation effort. Phase II, execution, will be the subject of the second post on this topic.

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

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