Five Principles of Sourcing – More on Coherence and Alignment (Part 2)

A little while back, we launched our Five Principles of Sourcing idea.  Inspired by conversations with Trade Extensions, whose software supports the most challenging, interesting and tricky sourcing work in the world, we have defined five core principles that we think everyone should bear in mind when looking at developing and implementing sourcing strategies.

We will be covering these in some depth through this year in a number of short briefing papers, and we are now promoting number 2. It is available for download (free registration) here and you get the first paper too (just in case you missed that).  Our concept is modelled broadly on the principles and credos that successful firms such as Mars, Ikea and P&G use to define their philosophy and style.

The best examples actually mean something and affect corporate behaviour in a positive way.  So, after careful thought, our five principles of sourcing are Coherence, Alignment, Rigour, Openness and Commerciality.  In this paper, we cover the first two principles – Coherence and Alignment.

The discussion on “alignment” starts with a look at internal alignment (with the business and internal stakeholders and the moves onto market alignment – here is an extract from that section.

Market Alignment

Just as internal stakeholders need to be involved and aligned, so too the sourcing process needs to be aligned with the market. Understanding how our requirements map onto market availability is vital. Too often, organisations assume that putting out a set of requirements is enough in itself to create a vibrant, competitive market for the goods or services it is seeking. Clearly, that is not true.

A lack of understanding of the market and what it can offer can lead to self-created monopolies or oligopolies, as buyers unconsciously put power directly into the hands of their suppliers. If the requirement is defined in a manner that only one supplier can respond to credibly, we shouldn’t be surprised when that supplier exploits their position later in the relationship …  it is key to make sure whenever possible that what is being sourced is aligned with what the market wants to offer - and can offer - in a manner that provides value.

Now historically, and with most standard category management processes, that would have been achieved through a diligent process of market and supplier research, with procurement undertaking an analysis prior to launching a structured sourcing exercise. But in recent years, the advent and growth of market-informed sourcing or optimisation tools has changed the game and given buyers the chance to be truly aligned with what the market and individual providers can best offer.

The sourcing process becomes in effect an opportunity to gather information and assess options, as much as it is an exercise in selecting a supplier or suppliers. We can gain an understanding of suppliers’ own cost drivers, and consider innovative alternatives to structuring the supply – including some we may not have even thought of ourselves.

So rather than the buyer trying to assess the market and supplier dynamics before approaching the market for a specific sourcing exercise, an optimisation approach enables the market to tell us the best way of structuring our optimal contracting outcome. By offering the market the chance to offer a wide range of alternatives in terms of volumes, specifications, dependencies and so on, and then having the tools to ask “what if” questions, analyse the complex responses and make sense of them, buyers can achieve true alignment with the optimum way the market can meet their needs.

Getting this market alignment, and ensuring that we are also aligned with the internal stakeholders and their business needs, is an absolutely key element of sourcing and procurement success. All five of our principles are important of course. But alignment is perhaps most clearly the principle that, if not followed, will lead to almost certain failure.

____________

Please do download the whole paper for more insight – and we’d really welcome any comments about the whole “Principles” concept.

First Voice

  1. alun@marketdojo:

    Market Informed Sourcing is certainly becoming quite a buzzword. Where we have found the challenge is in bringing this principal to all types of tender from the very complex and strategic through to everyday purchases. There still seems to be a way to go with respect to encouraging all walks of buyers to use these tools for all types of tenders. With the Holy Grail to move away from email, we would welcome peoples thoughts on how they thing this could happen? Obviously a clean, intuitive and simple interface can help, although email and speadsheets still wins hands down in many cases from a user drive perspective. Would you need to mandate eSourcing?

Discuss this:

Your email address will not be published. Required fields are marked *