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Strategic Sourcing
Planning optimal supplier levels and distribution options without imposing
restrictions on manufacturers or products required by faculty and staff is
a key step towards world class Supply Chain Management. It is the responsibility
of Purchasing Services to develop strategic sourcing initiatives to leverage
the University's buying power and identify product and service cost savings while
strengthening ties with suppliers offering the best quality products and customer
service. Strategic sourcing is also good for innovative and competitive suppliers,
including small and diversity owned businesses that might not have imagined they could
compete against larger companies for major contracts.
Benefits of Strategic Sourcing Initiatives
When developing strategic sourcing initiatives, Purchasing Services focuses on three
critical success factors:
- Total Costs Are Important
It's not just about price, but quality, service, delivery and all the aspects
that make up the total cost or value.
- Analytically Rigorous
The strategic sourcing managers do extensive research to determine the optimum
type and quantity of product or service needed, the marketplace pricing and service
benchmarks, and the competitive advantages offered by all potential suppliers,
not just the incumbent supplier.
- Broad-based Input
The decision to award a supplier relationship is not done just by the purchasing
organization. Strategic sourcing teams are cross functional, so suppliers must meet
with a group that's armed with facts and looking at more than price.
How Our Strategic Sourcing Initiatives Work
Purchasing Services began using strategic sourcing methods in 1996. Since then,
Purchasing Services has achieved over $100 Million in document cost
savings by using the following steps to successful sourcing:
- Purchasing Profiles & Prioritizing
The strategic sourcing teams gather as much information as possible about what,
when and how the institution should purchase the desired products or services.
This involves internal interviews, in-house surveys, as well as marketplace surveys.
After benchmarking internal and marketplace practices, priorities are set in areas
such as costs, service or quality.
- Identify Strategic Sourcing Products
Next is developing specifications for products to be purchased. This can be very
detailed, identifying exactly how a product is used and which features are most and
least important.
- Solicit Bids & Negotiate With Suppliers
Once the sourcing team understands what users need, it identifies the
"universe" of potential suppliers, big and small. A detailed Request
for Proposal (RFP) is issued detailing exactly what information is needed from
potential bidders, even incumbent suppliers.
Strategies for Success
Purchasing Services is interested in establishing mutually beneficial business
relationships with suppliers that share these common characteristics:
- Develop Competitive Value-based Pricing
Pricing plays a role in any supplier selection criteria, but many suppliers
incorrectly assume it is the most important part of a formal proposal. Purchasing
Services is interested in more than the price. Purchasing Services considers the
overall cost of products or services to the institution.
- Be Innovative
Purchasing Services is not only interested in new products and services that deliver
a competitive advantage, but also new ways of doing business. How quickly can the
supplier adapt to changing customer requirements at Penn? Does the supplier use
the latest technology? Does the supplier pass along the benefits of its cost
reduction initiatives?
- Emphasize Support And Service
One competitive advantage for suppliers in strategic sourcing is strong customer
service and support. This ranges from how the supplier answers complaints to
whether it guarantees levels of performance, such as on-time delivery and damage-free
shipments.
- Form Strategic Alliances
Small and diversity owned businesses can effectively compete against larger,
national competitors by forming alliances with similarly innovative businesses
in order to meet the service, technology and financial requirements of the
institution.
- Invest In Technology
One way many large businesses reduce supply chain costs is with electronic commerce
and better use of technology. This cost efficiency does not go unnoticed by the
institution.
- Promote Proactively
A key to success at Penn is the innovative and proactive marketing of products,
services and added value. Supplier must also keep Purchasing Services up-to-date
on developments within the company that may impact the business relationship.
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