Within supply chain management, and in particular strategic procurement, three types of sourcing models are currently in use. These are spend-driven sourcing, risk-driven sourcing, and strategy-driven sourcing.
While all three are proven models, adoption of any will depend on the individual company and its requirements along with the vendor market.
Spending-driven sourcing begins with spending analysis. A business needs to know what to buy, for whom to buy, in what quantities, and what the terms and conditions are for suppliers.
Resources are typically allocated to areas with the highest spending, although it can also be applied as a structured sourcing process to non-traditional purchases such as benefits, energy, and travel.
Spend-Driven Sourcing follows this seven-step process. The first step is to conduct an expense analysis on the chosen category of goods / services. This is followed by an internal review to determine the company’s need in that category. Once this is complete, a market analysis is performed and at the same time the company must develop a sourcing strategy for the category involved. Once the strategy is established, it is time to search and select the suppliers. The next step is to implement the sourcing strategy for the category. Lastly, it is important to manage stakeholder expectations in conjunction with supplier relationships.
This spending-driven sourcing leads to a better understanding of spending for each category and enables policies to be tailored to each category. So companies can prioritize categories according to the business of the company. Another benefit is that categories can be more easily defined.
Basically, spend-driven sourcing can be defined as getting the right person to find the right thing for the right place at the right time for the right price from the right supplier with the right level of service.
Risk-based sourcing begins with identifying risks to the company’s supply, assessing those risks, and implementing mitigation strategies. To be successful in this, a company must fully understand the mission of the company and the impacts of its supply strategies and programs.
This puts the focus on the root causes of risk, which can be things like hiring new suppliers, riskier supply chains (using foreign suppliers), or goods that require a high level of customization.
Strategy-driven sourcing begins with an enterprise-wide strategic plan that incorporates input from all relevant stakeholders. Resources are allocated to purchases that have the greatest potential impact on the business, allowing you to maximize your opportunities and minimize risk.
Strategy-Driven Sourcing looks at whether the purchase is operational or strategic. Operational purchases are those that have little effect on the company’s final customers, while strategic purchases have a significant impact on the company’s final customers or its bottom line.
When using this model, companies must apply a strategy that fits the purchase. Finally, it is important for a company to know which approach fits the stakes in choosing which model to adopt.
