Sourcing Strategies

Strategic sourcing is a systematic, long term and holistic approach to acquiring the current and future needs of an organisation. It consists of understanding the requirement, analysing the supply market, and devising the most appropriate sourcing strategy.

SELECTING SOURCING STRATEGIES

Selecting the most appropriate sourcing strategy is often problematic, as organisations struggle to consider options that are different from the status quo. The use of the strategic gemstone model, devised by A T Kearney, offers a framework for considering different sourcing options in line with the contingent circumstances of the procurement.

There are six different sourcing strategies available, grouped under two overarching themes. In situations where the buying organisation holds the power (leverage; high value/low risk), sourcing strategies relating to exercising this power (volume concentration; best-price evaluation; global sourcing) are likely to be used. Where the balance of power between the buyer and the supplier is equal (strategic; high value/high risk), sourcing strategies relating to creating advantage (product specification improvement; joint process improvement; relationship restructuring) would be more appropriate.

Under each of the six sourcing options, a number of different levers can be employed to deliver the relevant strategies.

Leverage-type procurements lend themselves to competitive sourcing strategies. Volume should be aggregated and spread across a consolidated number of suppliers. There should be a focus on competitive and transparent pricing but also an understanding of the underpinning costs to exert further leverage. Global sourcing is also used to identify new suppliers and achieve lower prices.

Strategic-type procurements lend themselves to collaborative sourcing strategies, working with key suppliers for mutual advantage. Specifications should be rationalised and standardised, lifecycle costs optimised, and substitute materials investigated to achieve best value. Joint process improvement should be undertaken and integrated supply chains developed, with mutual sharing of benefits. Strategic relationships should be developed and outsourcing arrangements considered to utilise the expertise of suppliers.

All of these options are open to public-sector healthcare buyers. The only caveat is that sourcing strategies must ensure compliance with relevant public procurement regulations and uphold public-sector principles of openness, transparency, competition, equal opportunities, consistency, and value for money. Furthermore, in relation to developing countries, a global sourcing strategy is more likely to be replaced by a desire to develop local and regional sourcing to drive down prices.

EVALUATING OPTIONS 

In reality, an organisation is likely to adopt a mix of different sourcing strategies and levers to achieve its objectives. In order to help choose which combination of options would be most appropriate, an option evaluation exercise may be carried out.

A simple approach is to apply the SFA test to the different options.

 

A more sophisticated approach is to evaluate and score each option according to their potential benefits and ease of implementation. This will establish which sourcing options take priority and which should be discounted or left for a later date.