What are competitive sourcing strategies in procurement?
3 December 2019
Competitive sourcing in project management is not just about price. It also improves the efficiency, effectiveness and reliability of the supply network and supports the broader organisation’s goals. Here’s how.
A vital part of project management
Whether for a unique, one-off project or for the organisational success of a business that relies on raw materials and other supplies, competitive sourcing is a vital part of project management that can bring value on numerous fronts.
Once seen as a passive, back-office job, sourcing is now recognised for the strategic benefits that it offers not only a project itself, but future projects and supply networks for entire industries.
The term ‘network’ is an important one to include in any discussion around strategic competitive sourcing. The process, when carried out well, turns what can sometimes be a linear (and therefore easily interrupted) supply line into a true network— a network that offers greater choice and an environment of constantly improving quality thanks to greater quality pressure between suppliers. It's also more difficult to disrupt.
In essence, competitive sourcing creates a more sustainable business environment in terms of cost, quality, network security and competitive advantage.
What is competitive sourcing?
Competitive sourcing begins with the process of familiarisation with the entire market for whatever it is that a project needs, on a local and global scale. That knowledge can be used to figure out whether a product or material should be made in-house, sourced locally or sourced internationally.
The ‘strategic’ part of the approach comes from linking this decision to the business’s objectives. Is the goal to lower costs dramatically, to increase quality, to improve delivery time, etc?
Once a decision is made around where to source, competitive sourcing becomes about developing a network of providers, getting to know their various strengths and weaknesses, being as clear as possible about requirements then beginning negotiations. The benefit of the network, of course, is that it offers choice. Several suppliers can be used for a similar purpose or, if only one supplier is being utilised and a supply network interruption occurs, knowledge of the network immediately makes it clear as to who is the next-best supplier.
There are several sourcing strategies a project manager should utilise on a regular basis. In SCU’s Master of Project Management, we take a deep dive into the critical and strategic sourcing processes that can be utilised for project planning, quality and risk control, ongoing management of projects and continuous improvement of project management processes.
Here are five of the most important competitive sourcing strategy processes in project management.
1) Conduct a full spend analysis
This step is about the past, present and future.
What does your business buy and where from? How much does it pay? What are your suppliers’ strengths and weaknesses? Most importantly, why does your business make these purchase decisions?
This part of the process is about the development of a deep familiarity with the current state of play including levels of price, quality and types of materials. Such knowledge is required before a decision can be made around whether the organisation’s sourcing practises match its strategic objectives.
As markets change and forces that are outside the control of your organisation come into play, a deep knowledge of current processes and their strategic drivers offer a greater ability to recognise and action alternative options.
2) Conduct an analysis of local and global marketplaces
If a project management expert is going to be able to react and perform in a fast-changing business environment — with forces of disruption coming from every level including organisational, national, global and geopolitical — they have to know what options are available.
The business might source from local or regional suppliers, but it’s still important to at least be familiar with what is available from markets that are more distant but perhaps more affordable.
To adapt to the fast pace and disruption within the business world, a project manager needs to be familiar and comfortable with asking questions to challenge current processes Who are the industry leaders in each market and who is innovating? How are the supply networks set up and how long would it take to have materials delivered from those territories? How do these figures compare to your current supplier network, and can they be used as a tool of negotiation around price, delivery time and quality?
3) Confirm the organisation’s strategic goal
The reason that sourcing has gone from one that was once perceived as a back-office or desk job to one that is discussed around the board room table is because it has been recognised as being of vital strategic importance.
Competitive sourcing influences quality, price, time to market and even the ability of a business to innovate. These are all potential strategic goals of a business, and in today’s fast-changing market, strategic goals are regularly revisited and re-focussed.
Is your business looking to develop a reputation for outstanding quality? Is it planning to become a leader in innovation? Is it looking to be recognised as a business that offers the greatest value in the market?
These are all goals that sourcing can assist with. First, though, the project management team must be familiar with the current organisational strategy.
4) Identify gaps in talent/resources
If the business is serious about reducing costs by sourcing from offshore producers, it will require staff and resources to deal with time differences, language difficulties, legal differences, transport/duty/customs clearance issues and costs, increased lead times, and more.
Does your project management team have the right mix of talent and experience to deal with such demands, or is there a gap that must be filled?
Conduct a talent audit once the preferred competitive sourcing strategy has been defined, ensuring the team is well prepared for any new challenges.
5) Inform, select and negotiate
Once all of the above information has been gathered and the right people and plans are in place, the business will have a clear idea of its preferred sourcing strategies and the drivers behind those strategies. The request for proposal must make this just as clear to potential suppliers. It should contain as much detail as possible around the type of material, quality, delivery times, pricing, post-sales service, etc. to ensure there is no room for misunderstanding.
Then comes the negotiation with preferred suppliers, where all of the most important details are nailed down and formalised in various types of contracts — another focus of the SCU Master of Project Management.
There are several other important inclusions in a full competitive sourcing strategy. But get the above basics right and you’re likely ahead of most competitors.
If you're looking to upskill or invest in your abilities, a Master of Project Management with SCU Online could equip you with the skills you need to propel your career. Get in touch with our Enrolment team on 1300 589 882 to learn more.