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To focus your efforts and get the best total value in sourcing, an effective strategy must be developed and implemented. Everyone has heard the popular terms "partnering" and "strategic alliances with suppliers." There is not nearly enough time or resources to form partnerships with every supplier that you do business with. While partnering and strategic alliance relationships can be highly effective, companies would need an enormous purchasing staff to form partnerships with all of their suppliers. Even then, it would not be economically feasible. Why spend 100 hours to form a partnership with a supplier with whom you only spend $5,000 a year? The simple fact is that some types of products warrant a lot of effort to form close relationships or partnerships in order to receive strategic benefits and good prices. Other types warrant only a quick bidding process and a simple blanket contract to make the transaction as simple and quick as possible.
This is why a strategic framework to understand and focus sourcing can be critical, especially with sourcing constituting 50 to 70 percent of many companies' total costs. A model for such a framework is the Supply Strategy Square (Figure 1). (Figure 1 omitted) With the Supply Strategy Square, each category of products uses one of four sourcing strategies, based on the product's complexity and value potential.
Using a checklist, along with minimal collection of data, a company can categorize each of its product categories as either high or low in complexity and in value potential, placing it in one of the four strategy guadrants.
A checklist might include some of the questions found in...