Top Tips for Setting Your Scope

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Procurement Matters A series on effective
Procurement for Professionals Part 1 How to set
the scope of your sourcing strategy
Here is an example of what I mean... Suppose you
are going to market for a cleaning contract to
service a number of offices. You will get a
price which may, or may not, be better than the
one you are currently paying. If you add to the
scope other facilities related services such as
gardening, security or maintenance then you are
increasing the value of the contract and so
your leverage in the marketplace ... but this may
have to be balanced by the fact that you may be
potentially reducing the number of capable
suppliers. But how about going further? You may
decide that you want to outsource the whole of
your property management or even sell and
lease back your property portfolio. This will
dramatically increase the value of the contract
and
take you into a different league of potential
cost savings but will also increase the
complexity of the procurement and the range and
number of stakeholders who need to be involved,
adding significant time that is needed to
arrive at a solution that is acceptable to
everyone. Even if you decide that this is the
scope that you want, there may be another
alternative that adds even more value. How
about selling off your property portfolio and
buying in a service in which the supplier
provides a defined office space per person
together with everything that person needs to
perform their job heating, lighting,
furniture, telephone, computer and so on. All at
a cost per person but with the requirement that
you may want to flex this up or down over time
depending on your business needs. The onus is
on the supplier to
The scope of your sourcing strategy determines
what you can and cant consider when creating
your sourcing strategy. The scope (along with
the business requirements we cover in the next
section) is probably the most important part of
what you do in preparing a sourcing
strategy. Get this wrong and the possibility of
achieving a breakthrough result (one which
delivers cost reductions of 15, 20, 30 or
even more and one which delivers improved
service quality and innovation) will be greatly
reduced. The starting point is to decide how to
define the category of what you are sourcing.
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sell surplus capacity in the office
building. This changes a fixed cost to a
variable cost so that your costs are more
closely aligned with your needs. Eliminating
the waste that comes with having excess office
space can yield dramatic results. As well as
potentially reducing all of the associated
costs such as furniture if the supplier can
bundle your requirements with those of other
clients and go to market with a bigger volume
than you can on your own. Other questions you
can ask in order to define the scope of the
strategy include the following. Are there any
geographical boundaries that need to be
considered? This may be the result of supply
market capabilities (for example, the
technology you need is not available in
certain parts of the world) or because of your
sustainable procurement
strategy (for example, not to buy from areas that
have a reputation for employing child
labour). What time period should the strategy
cover? For example, if the supplier will need
to make an invest- ment in equipment in order
to fulfil the contract, the time period will
need to be long enough for them to recover that
investment cost and still achieve your price
target. Are there any organisation- al
boundaries that you need to consider? For ex-
ample, part of the scope that you are
considering may already be covered by a
collaborative agreement with other organisations
and you are contractually bound to honour
this. The output from this process of defining
the scope should be a simple statement of no
more than one or two sentences. Here are some
examples- All residential care homes in the
county or
IT maintenance that in- cludes all laptops,
printers and multi-functional devices or All
grades of boron, carbon and high strength steels
for manufacturing plants in Eu- rope. What this
cleaning contract example shows is that by
considering the capability that you are
sourcing instead of the narrow product or
service definition, you can generate options
that substantially increase the value of the
category. In the example, we did this by
thinking about the capability as being the
management of the working environment. This led
us from a very narrowly defined service
(cleaning) to produce options that include
outsourcing the management of your property
portfolio. The result is more options for
creating a breakthrough in your cost reduction
plans.
Want more Top Tips?
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Sourcing Strategies by going to ...
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