Summarizing Factors That Drive Sourcing Complexity

category management

Sourcing complexity can serve as a barrier to pursuing potential high reward and high risk procurement initiatives. But complexity does not have to stand in the way of savings, total cost or other improvements. Identifying how to pinpoint complexity is essential.

An important place to start here involves fully exploring factors that drive sourcing complexity. In the paper What defines complex sourcing – and why does it matter?, my colleague Peter Smith succinctly structures and presents those factors.

Peter begins this argument noting by what does not drive complexity. (See our last post in this series for more detail on the topic.)

“Understanding what does not drive sourcing complexity helps us to understand what does,” Peter observes. “In terms of identifying those factors and drivers, it is useful to consider them in three sub-groups: those ‘internal factors’ that are driven by the nature of the buying organisation itself; those that are market driven; and those that arise from the commercial models that can be used for that spend category (usually driven by both market and buy-side factors).”

Peter suggests three different factors that drive complexity: internally driven, externally driven and commercial model considerations. In his words:

Internally driven:

  • Breadth and diversity of stakeholders — users, budget holders, etc.
  • Breadth and diversity of the requirement — different options to consider
  • The number of line items/variants/lots — volume-driven complexity

Externally driven

  • Supplier population — the number in the market or the sourcing exercise
  • Alternative market solutions and offerings — the range of available options
  • Capacity constraints — supplier limitations on volume

Commercial Model

  • Supply chain options — different tiers or levels at which work can be done
  • Pricing models — complex alternatives for pricing are available
  • Options for conditionality — “if/then” proposals from suppliers to analyze

Now that you understand the drivers of complexity, what are the best ways to tackle complex sourcing initiatives? Wait for our next installment in this series. Or download Peter’s full analysis today.

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