The sourcing opportunity assessment identifies the total cost reductions and cashflow improvements possible and then lays out a roadmap of how to achieve them. How long it takes will depend on the size of the organization and the number of geographies assessed.
Data collection and situation analysis
This initial phase is fundamental because it lays the foundation for the entire assessment and subsequent hypothesis testing. Missing contractual documents or incomplete data will delay benchmarking exercises and present an incomplete picture for the assessment team to analyze. To avoid these gaps, companies should set data- completeness targets and make sure they're met ahead of starting the clock on the formal four-to-five week assessment period.
Opportunity/hypothesis identification and stakeholder reviews
As contracts and payment data are only part of the story, the assessment team should also begin its analysis by testing and validating a set of hypotheses. Part of this validation will come from qualitative – and not just quantitative – insights such as:
- The history of relationships with key suppliers that led to the commercial terms in the latest agreements
- Internal projects that influence the ability for a company to move away from using an incumbent supplier
- Operations metrics that detail how a company interacts with key suppliers. This can include payment term performance, supplier risk, and supplier performance management indicators, and core supply chain processes such as fulfillment and demand planning
The spend cube development process is then a critical next step. When combined with the spend profile, it creates a baseline against which savings projections can be calculated. If the baseline is incorrect, or deemed untrustworthy, this will have a direct impact on the output's credibility from the assessment process.
Opportunity sizing, refining, and validation
This stage requires close collaboration with finance to ensure that everyone agrees on how to calculate savings against each opportunity. This should not start until the spend cube and spend baseline have been finalized. It's important to have validation, confirmation, and buy-in from the impacted internal stakeholders as well as budget holders.
The plan and overall roadmap for how to implement each opportunity, how long it will take, and whom to involve are as important as the opportunity identification. Plans should be detailed and realistic based on available resources. In the current COVID-19 environment, many organizations are running lean, with key procurement and project management staff having to take on multiple roles. Expecting these team members to drive incremental and accelerated cost takeout programs can be unrealistic. Organizations should explore how self-funded commercial terms can support these initiatives with service providers such as Genpact.