Supply Chain Solutions No.30 – Strategic Sourcing
Strategic sourcing is the continual improvement and re-evaluation of your supplier matrix. The vendor matrix defines a group of suppliers capable of meeting business procurement objectives across category spend, capacity, quality, and sustainability.
Your business strategic sourcing needs depend on your companies current trend and future goals. Procurement spend of USD10 Million or USD 1 Billion, ODM or OEM product, one-off production or continuous production, and single or multi sales markets all need a plan which defines supply chain and business targets. Building a reliable vendor matrix that supports those targets is critical.
Before the vendor matrix can be clearly defined, analysis and assessment of the current supply base and category spend are required. An opportunity assessment of current product spend is critical to ensure products are grouped correctly into categories to leverage vendor spend, ensure capacity and lead-time versus vendor capability and location.
Dependant on the industry, category grouping will be best split by product manufacturing and raw material type. Multi-level categories will be necessary for speciality manufacturing, end consumer market regional requirement and lead time flexibility.
Defining the Supplier Matrix
With the category structure now established and factors driving consumer market need and limiting risk in each sourcing region considered, the number of vendors required per category must be set.
ODM categories, vendor numbers will depend on the size of the category. Preference would be two primary vendors and two secondary vendors using the 80/20 principle. Limitation on IP rights may restrict the number of vendors whereas multi-country sourcing servicing different consumer markets will increase the vendor number.
OEM categories, vendor numbers will depend on the brands need for product depth and or subassembly use on ODM products.
A key component of the matrix is to limit the number of vendors while ensuring spend is leveraged and sustainable, MOQ is achievable, vendor relationships are meaningful, the volume of scale is logical for logistic and quality management, and supply risk is acceptable. Global supply chains will need multi-channel supply routes to accommodate the requirement of individual consumer markets adding to the complexity.
There must be an allowance for a vendor onboarding and trialling. Testing new vendors or regions to explore pricing options, mitigate trade risk and allowing room for outside the box vendor development is critical to ensuring an innovative and transformational sourcing platform that adds brand value with no disruption to the customer.
Vendor Matrix Stakeholder Buy-in
When the matrix is complete, stakeholder buy-in is paramount to ensure a smooth rollout. The matrix must go through a constant evolution and re-evaluation on a periodical basis matched against market trend, vendor scorecards and or KPI’s, business goals and changes in sourcing market trade policy. Stakeholders buy-in at each advancement is critical to success.
A Tool for Continuous Improvement
Vendor management and supplier matrix continuous re-evaluation will have a positive impact on delivering business goals, cost improvement and delivering innovation. The vendor matrix is a tool to manage your supply chain objectives regardless of high SKU low quantity or low SKU high quantity business model.
ID Global Concepts are experts in supply chain management. We add value to your supply chain through consultancy or management contract to ensure the business has the best practice systems that are the right fit for your business, customer and meet your value expectations.