| The basis of developing and implementing a supply | | | | and high market complexity a collaborative |
| strategy is to organize that strategy, tactics and | | | | relationship method can be used. In this method there |
| management approach to effectively link them to | | | | is more communication and supplier involvement and |
| the overall goals of the company. | | | | typically involves longer contract lengths. |
| The key segments to include in that strategy are risk | | | | Over the years sourcing has become much more |
| to the organization, cost and value to the | | | | organized and employs a much more systematic |
| organization and the market complexity in the | | | | approach while at the same time engaging the |
| sourcing arena. Risk is the extent of negative | | | | suppliers in a more collaborative way. It is organized in |
| outcomes if the good or service is of low quality, too | | | | that it is now an ongoing enterprise process and |
| expensive or becomes unavailable. Cost and value is | | | | systematic in that there is now an agreed upon |
| usually measured in dollars but it could also have an | | | | process for sourcing within the organization. |
| intrinsic value as well. | | | | This systematic process encompasses seven steps, |
| Examples of high risk are those supply items that | | | | Internal assessment of the company's sourcing |
| come from a single supplier while examples of low | | | | needs, a supplier market assessment, gathering |
| risk supply items would be things such as office | | | | supplier information through supplier surveys, the |
| supply items. | | | | development of a sourcing strategy, the solicitation |
| Low market complexity exists when there are many | | | | and evaluation of bids, the negotiation with and |
| suppliers, excess capacity, standard specifications for | | | | selection of suppliers and finally the implementation of |
| products and possible substitute exist. High market | | | | the selected sourcing strategy. |
| complexity is the exact opposite, where there are | | | | In many companies there has also been a shift from |
| few suppliers, restricted capacity, unique product | | | | the traditional sourcing model with its focus on price |
| specifications and no substitutes available. | | | | and cost of ownership. This model is very process |
| For each of these environments there are associated | | | | driven and utilizes well developed procurement skills. |
| vendor relationship strategies that can be utilized. | | | | The shift has been towards a value based model |
| In those environments with low product value, low | | | | which has a focus on value, the total contribution to |
| risk and low market complexity a transactional | | | | ownership. It is strategic intent driven and utilizes |
| relationship method can be used. This method | | | | sound business skills. |
| requires less communication, less supplier involvement | | | | This means a focus on the greatest value to the |
| and shorter contract lengths. | | | | organization rather than the greatest savings. |
| In environments with a high product value, high risk | | | | |