An opportunity analysis process for sourcing initiatives
What is an Opportunity Analysis?
“An Opportunity Analysis is an initiative that attempts to identify ways to capture value through sourcing. These opportunities are identified after analysing organisational requirements, supplier spend, current sourcing processes and other data sources. An Opportunity Analysis initiative can differ in the number of categories in scope and type of outcome”, Andrew Hillman, Managing Director of Bespoke Sourcing Solutions, told SmartProcurement.
Types of Opportunity Analyses
1. Category Opportunity Analysis
- One category in scope of Opportunity Analysis.
- After the Opportunity Analysis initiative, a new team or sub-team is typically formed to capture the identified opportunities. These could include:
- Quick hits;
- Process improvements;
- Cross-divisional savings opportunities; and
- Other actions specific to business dynamics.
2. Divisional / Department / Product / Geographic Opportunity Analysis
- Many categories in scope of Opportunity Analysis.
- At the end of the initiative a high-level recommendation for each category may include the following:
- Form a new team around a specific category or spend area;
- Join an existing team;
- Use an existing, preferred supplier program / standard agreement; and
- Other actions specific to business dynamics.
Why perform an Opportunity Analysis?
The purpose of an Opportunity Analysis initiative is to facilitate the identification and capture of sourcing process improvements and savings opportunities. These opportunities can come in many forms, such as:
- Improve sourcing processes:
- Increase efficiency of internal processes and eliminate non-value add activities.
- Improve supplier processes to reduce their cost to provide goods and/or services and increase their efficiency.
- Enable an effective supplier management program.
- Expand scope of existing category agreements:
- Reduces risk and liability.
- Capture value for the organisation:
- Pay less for current product or service.
- Receive more products, services, or value at current price paid.
- Pay below market price for expanded products or service requirements (spend more absolute money while realising savings by paying below competition/market).
- Train and lead non-procurement colleagues in sourcing skills and processes to create ‘sourcing champions’ throughout the organisation, where applicable.
What are some underlying objectives?
Beyond the stated purpose of an Opportunity Analysis initiative, there are additional objectives, such as:
- Engage internal clients and build relationships throughout the organisation;
- Identify quick hits;
- Start work on initiatives; and
- Include existing work or current implementations.
How an Opportunity Analysis fits into the sourcing process
“Opportunity Analysis is the starting point in any strategic sourcing process. For category teams, an Opportunity Analysis is a critical part of the first step in the sourcing process, namely to identify need and pre-project planning. It is during the Opportunity Analysis that the magnitude of the potential value, and the level of difficulty are predicted”, Hillman explained.
Divisional / Department / Product / Geographic Opportunity Analyses are initiated prior to the formation of category teams. At the completion of these Opportunity Analyses, recommendations are made for each category in scope. For one category the recommendation might be to start a new category team. For another category, the recommendation might be to join an existing category team. Another recommendation may be to leverage an existing agreement made by a category team (see the materials on the 7-step sourcing process for more information on the process of category teams).
The Opportunity Analysis Process
Opportunity Analyses will differ in the specific actions and deliverables, but generally follow a standard 6-step process:
- Initiative start up.
- Data collection.
- Data analysis and summary.
- Option development.
- Recommendations and summary findings.
- Approvals and implementation planning.
The three key milestones of an Opportunity Analysis process are:
- The welcome meeting – after the ‘initiative start up’ step (step 1).
- The interim findings meeting – after the ‘data analysis and summary’ step (step 3).
- The findings summary meeting – after the ‘recommendations and summary findings’ step (step 5).
Tracking progress and measuring success
It is important to spend enough time anticipating how you would track progress and measure success in a sourcing initiative before you proceed.
In your first discussions with team members on a new sourcing initiative, it is common for people to ask, “How are we going to capture savings?”, or “How are we going to track the improvements we have generated when we are done?”.
Thinking about these items will help your team better understand the dynamics driving the industry or category you are evaluating, and can serve as the basis for future tools for analyses. Some tips to consider when you are contemplating how to track progress and measure success in the Opportunity Analysis process are:
- Develop Key Performance Indicators (KPIs):
Identify the metrics that drive the industry or category. These often serve as the foundation for the Request For Information (RFI)/Request For Proposal (RFP), or supplier scorecards that are developed later. It is important that these KPIs include qualitative as well as quantitative components – it is easy to measure savings using quantitative methods; qualitative components are essential for tracking improvements in service levels that cannot be captured in numbers.
- Define ‘year one’ targets and ‘continuous improvements’:
It is important to separately consider the ‘year one’ efficiencies and the ‘continuous improvements’ of the opportunity that you are exploring. Quantitative savings are often easy to capture in year one after a new rate has been negotiated and a contract signed. Monitoring improved service levels over time is often more difficult and requires a longer-term view on supplier and team management. From the beginning of the Opportunity Analysis process, it is important for team members to understand that the project does not end once the contract is signed.
Measuring success is an important, ongoing component that needs to be managed by a team.
Article submitted by Andrew Hillman, Managing Director of Bespoke Sourcing Solutions.
Andrew Hillman can be contacted at the details below:
Cell: +27 82 858 1850