In this issue 18 February 2020:

Project Ignite – Strategic Sourcing Case Study

Introduction

In my last blog Procurement Capability and Maturity Model dated 30 January 2020, one of the improvements focussed on was the introduction of strategic sourcing. The practical approach adopted is discussed below.

Project Objectives

  1. Identify sourcing opportunities and build category plans.
  2. Identify sourcing opportunities and sourcing approaches to effectively deliver sourcing benefits.
  3. Establish the sourcing governance for effective procurement decision making.
  4. Obtain approval from the relevant governance committees to move into the sourcing phase of this project.

Determine Market Competition

Barriers to entry include high capital outlays and high operating costs, the market remains very competitive in the battle for market share

project ignite

External Market Forces

The company should focus on identifying suppliers with good local content credentials. Appointed vendors must however be compliant with legislation and should be able to meet environmental requirements.

project ignite

Conclusion

  • Although there is a trend away from cash, most countries on the continent are still very cash dependent. Suppliers are shifting their focus from risks to managing costs in a better way. Technology plays a key role in reducing costs and will be critical from reducing the dependence on humans as well through the advent of ATM’s, note sorters and Cash in Transit companies
  • Barriers to entry include high capital outlays and high operating costs, the market remains very competitive in the battle for market share
  • The countries should focus on identifying suppliers with good local content credentials. Appointed vendors must however be compliant with legislation and should be able to meet environmental requirements

Category and Supplier Positioning

Suppliers are not aligned to how the company views the commodity. The company must align the profile of this commodity with suppliers and treat them as strategic if they wish to negotiate better deals, service improvements and get sustained value from vendors.

supply market challenge risk

Sourcing Maturity

The commodity is relatively immature in the selected countries. By adopting procurement best practices and focusing on closing the gaps ROA will benefit financially and operationally from improved vendor relationships.

cash commodity maturity

Sourcing Opportunities – levers

Workshops held with the team identified and prioritised spend consolidation, best cost evaluation, specification improvement and total cost management the primary sourcing levers to focus on in the initial phases.

opportunity grid

 

What this means in practise is that procurement focussed on negotiating and implementing the following…….

procurement models

Suggested Sourcing Approach

  • Option A: Sourcing is done centrally by ROA team
  • Option B: Sourcing is facilitated by ROA team in conjunction with the in-Country teams
  • Option C: Sourcing is done by the in-country teams

Pros and cons for the 3 possible options

sourcing projects

High level sourcing strategy

opportunity analysis

Summary

Based on the introduction of category management and other strategic sourcing principles the savings improved as follows:

Year 1: R7m
Year 2: R61m
Introduction of strategic sourcing with emphasis on category management happened after year 2. This included improved demand planning, market analysis and benchmarking, improvement in the sourcing approach based on a 3-pronged approach (group, regional, in-country), contracting and the introduction of supplier performance and relationship management.

Year 3: R 169.3m
Year 4: R 205. 0m

janineh@tkjprocurement.com | etienneh@tkjprocurement.com | www.tkjprocurement.com