Pushing Sourcing Strategies into Contracts

In the world of Strategic Supply Management, everyone knows that the ROI of strategic sourcing initiatives is only as good as the resulting contracts and the contract compliance in purchasing.

Last week, I attended a Selectica webinar — now on demand — titled, “Creating Strategic Value from Contract Management.” Guest speaker Andrew Bartels, Vice President and Principal Analyst at Forrester Research, Inc. discussed the importance of choosing an enterprise Contract Lifecycle Management (CLM) solution that is cross-process, not process-based. He included a visual representation of how contract management crosses through the entire organization from buying all the way to selling.

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His presentation got me thinking about how strategic sourcing decisions flow directly into contracts and what sourcing teams can do to safeguard the value of the strategic sourcing investment.

Experienced strategic sourcing teams develop a sourcing strategy that is unique to the needs of each sourcing project. The sourcing strategy is based on basic project goals such as supplier consolidation, supplier discovery, cost savings, enhanced TCO, and other key elements such as:

  • Whether quantity of goods being sourced is large enough to create buying power
  • Level of risks associated with supply continuity
  • Number of potential suppliers in the market
  • Pros and cons of choosing suppliers based on region (country, continent, etc.) vs off-shore sourcing
  • Performance metrics and overall satisfaction of business stakeholders with incumbent suppliers

This type of supply market research and analysis make up the strategic context that sourcing organizations use to select the right sourcing tools and methods for individual projects. In the past few years, it has become increasingly common for sourcing teams to share elements of this strategy with suppliers, e.g. source everything to a single supplier or award the business to the top 3 suppliers (based on a combination of price and quality estimates) in each region. However, the sourcing team never shares all of the information behind their strategy with suppliers. The complete strategy information is commonly understood by the sourcing team and also by business stakeholders who engage in the sourcing process, but the sourcing strategy and methods are rarely documented as sourcing project artifacts.

What I’m proposing is that sourcing teams should provide full disclosure of their strategy and the strategic context with the legal team who negotiates final contracts. The best way to do this is to write it down. Make a formal sourcing strategy template that notes the main considerations that went into the sourcing plans and summarizes how and why the sourcing team chose the methods and tools that they used to make the ultimate award decision. Incorporate strategy documentation into your overall sourcing process and make the resulting document available along-side award information so that the legal team can make sure they don’t inadvertently allow suppliers to redline aspects of the agreement that are critical to the spirt of the strategic sourcing decision.

We are committed to the alignment between strategic sourcing and contract management processes. How does your sourcing team ensure contracts carry out strategic sourcing decisions? Share your thoughts by commenting below or tweeting @iasta.

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