Bridging the Sourcing Gap for Stronger Post Lockdown Recovery

Bridging the Sourcing Gap for Stronger Post Lockdown Recovery

The COVID-19 pandemic has disrupted supply chains across the globe; with supply and demand patterns altering drastically. Organisations and sourcing functions are under great stress in managing suppliers and supplies. 

Non-availability of material, delayed availability of material due to interrupted supplies or small suppliers unable to meet changing demands are some of the problems that organisations are facing creating tremendous stress and strain in the system.

In this stressful situation, lack of a clear sourcing strategy and methodology is causing organisations to react in a knee jerk fashion causing further cash flow problems, supplier dissatisfaction and an ever-increasing gap in meeting customer requirements. 

This Sourcing gap can be bridged by adopting a structured sourcing approach which is where Kaizen Institute’s Sourcing & Suppliers Module- a key component of the KAIZEN™ Business System can play a key role.



The Sourcing & Supplier Module consists of the following steps:

1. Demand Analysis

2. Supply Analysis

3. Sourcing strategy selection

4. Supplier selection

5. Supplier performance monitoring & Supplier Development


1. Demand Analysis

Demand analysis is a systematic process of gathering information pertaining to current and potential business needs with respect to a given sourcing category to understand its importance and impact on business objectives. Factors that are analysed are the impact of this category on organization spend, competitive advantage, innovation etc to determine its overall business impact.


2. Supply Analysis


Supply analysis is the process of gathering and analyzing information about relevant suppliers, competitors, and the market in general to support decision making in selecting the supply source and in developing the sourcing strategy.

The supplier market analysis is carried out after gathering information from the organization database, Government agencies, Sourcing websites/magazines, suppliers etc. Further segmentation of supplier data is done based on various criteria eg. Geography, innovation, technology, Quality, customer base etc.

The impact of various Supply market forces eg. supplier power, supply market, buyer power, threats of new entrants & new substitutes are analysed and the risk profile of suppliers determined. A potential list of suppliers is then prepared based on the above information.


Another key element is the cost driver analysis to identify the important cost components and how the price had developed over time for a category or equipment. This will provide valuable insight during a price evaluation and negotiation process with the supplier.  


3. Strategy selection

Based on the information gathered in the above steps, an organization can develop a sourcing strategy suitable to meet its business objectives.

One of the key things that need to be done as part of the strategy selection is to align internal processes ie how should the business organize its internal supply chain process vs external processes ie.how should the business deal with the external supply base. Once that is done, segmentation of suppliers is done in four categories using the Kraljic matrix.


The sourcing strategy is then developed using a combination of the following levers:

  • Volume concentration
  • Best price evaluation
  • Global sourcing/import substitution
  • Product specification improvement
  • Process improvement 
  • Relationship restructuring


4. Supplier selection

The following process is followed for supplier selection:


Based on the evaluation suppliers are grouped further following which a detailed strategy for a fact-based negotiation is prepared and executed resulting in a win-win situation for the organization and the selected supplier/s.



5. Supplier performance monitoring & Supplier Development


Once suppliers are on board; their performance is periodically evaluated on mutually agreed criteria related to Delivery, Quality, Documentation & Costs.

Improvement areas are identified, and actions taken are tracked till completion. Suppliers not meeting criteria repeatedly are replaced. Suppliers who are key or strategic to the organization and are keen to develop long-term relationships are selected for a supplier development program wherein the organization works closely with the supplier to continually improve their processes and performance.

By adopting structured strategies as above, organisations can be better prepared to handle their sourcing processes both during normal circumstances and more importantly, also during crisis situations that the globe is currently facing. Kaizen Institute can support organisations in hand holding them during this journey.


Authors


Murali Venkitanarayana, Senior Consultant at Kaizen Institute


Harsh Choudhary, Consultant at Kaizen Institute

About Kaizen Institute

Kaizen Institute is the original and premier provider of KAIZEN™ services of Change Management, Business Excellence, Operational Excellence and Lean.

We support companies of all sizes in all market segments, providing them with a sustainable, competitive advantage. Our Vision is Improving the world with Everyone, Everywhere, Every Day – The KAIZEN™ Way. “KAIZEN™ means Change for the better.”

Kaizen Institute is a global organization which provides consulting and training services to companies represented in Europe, the Americas, Asia-Pacific, the Middle East and Africa. We are currently operating in 60+ Countries for 35 years.

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