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How to become a Sourcing Consultant
What is Sourcing?
Before we define Sourcing, let us first step back and picture a process. A process that is adopted by almost any manufacturing company. The process which involves the finding of raw materials, to producing the product and delivering that finished product to the end customer. This process is simply defined as Supply Chain.
A typical Supply Chain consists of the following steps:
Scheduling & Production
Sourcing as defined above involves the strategic process of finding various suppliers in the market who can provide the best mix of quality and price of inputs or raw materials that we need to produce our final product for sale to the end customer.
A simplified example is – if our business is to make pencils, what all do we need? We would need wood and lead as our primary inputs. So we need to buy wood from a Supplier A and lead from a Supplier B and then work our machines to make nice pencils!
Now imagine doing this activity for a large company that is into making complex goods that require a host of inputs from various suppliers. This implies, the sourcing of goods and services from suppliers in various markets and segments of the economy. What we are trying to say is, the sourcing process is strategic in nature, it needs deep knowledge of the products (in terms of types, quality, ranges), immense know how on the latest types available of that product, the various suppliers for that product either domestically or internationally and the competitive prices quotes for these various products.
Typical Job Description - Sourcing Consultant
- Provide sourcing and contracting support for indirect spend categories as assigned.
- Develop, manage, and lead sourcing and contracting efforts in assigned areas.
- Effectively manage RFx processes in a timely manner as required.
- Review, develop, redline, and negotiate legal contracts and statements of work (SOW) in cooperation with internal stakeholders and external business partners.
- Negotiate rates, value adds, service level agreements (SLA's) and other contract terms
- Develop effective SLA's or key performance indicators (KPI's) for a suppliers services
- Develop value-added supplier partnerships that will minimize cost and risk while maximizing quality
- Proactively identify emerging opportunities and translate into sourcing strategies and action plans.
- Create project plans to execute sourcing initiatives.
- Conduct supplier market research and spend analysis as needed.
- Ensure compliance with all government regulations and internal company policies and procedures
What does a Sourcing Consultant do?
A Sourcing Consultant specifically focuses on ensuring that the procurement of various goods and services is done in a well planned manner, inventory levels are maintained and good supplier base is developed to meet continuous production demands AND all this at optimum cost levels.
His constant endeavour is to manage the cost structure of various inputs and achieve maximum level of savings by negotiating with various suppliers on price discounts, contracts and related service agreements.
The spending a company incurs on the procurement of these raw materials or inputs is termed as Indirect Spend (since it is spent on indirect goods- goods that are used to produce the end or final product sold to the customer). This spend can be further classified into different categories of indirect spend. Typical categories of indirect goods are shared in the Table below.
The sourcing consultant analyses the indirect spend data for the company for each category and concludes whether there is scope to increase the savings and reduce the cost of buying those goods & services. He studies the current supplier base and the prices they are selling it. He compares it with other suppliers for the same goods in the market and works with a few selected suppliers , inviting them to present quotes. He negotiates with shortlisted suppliers and gets competitive prices for the various good and also negotiates service levels and signs contracts to administer these. This way he is able to achieve savings of two types -
(a) Negotiated Savings
(b) Realized Savings
To understand the difference between these two types of savings, see the numerical example below:
Year 1 - Good X is priced at $28. The firm buys 110 of them that year at that price.
For the new fiscal year, the sourcing consultant negotiates with prospective suppliers and choses one who agrees to give them Good X at a price of $25 for that entire year and assures that the firm will buy at least 100 of Good X.
In this case, the Negotiated Savings are calculated as follows:
Year 1 spend on Good X - $28*110 = $3080. In the new year, with the new negotiated and lower price, if they end up buying 110 of Good X yet again, they spend will be $25*110= $2750.
So the negotiated savings are Year 1 actual spend - current year expected spend, which is
$3080 - $2750 = $330.
If at the end of current year, they end up purchasing only 102 of Good X, their spend is $25*102 = $2550 and actual savings (based on actual buys) will be $3080 - $2550 = $530
This of course is a very simplistic example, but if you think about such negotiations being carried out for entire categories of products and services and for large companies, you can get an idea of what the savings could amount to! It runs into millions..
Product & Services Categories
Why is it important?
Sourcing consultants usually specialize in one or more of these categories and are deemed category experts when they have gained a certain level of knowledge and experience in sourcing goods and services in those categories.
They play in an important role in managing the costs for a company. With their market knowledge and negotiating skills, they obtain a competitive price for various goods and services from suppliers. They also establish relationships with various suppliers. This helps both the buyers as well as suppliers. The buyers get great prices and are assured of quality and timeliness of delivery from suppliers when they enter into contracts or agreements with the suppliers. The suppliers in turn are assured of sale and thus can manage their inventory better, thus help maintaining lower costs.
A healthy supplier relationship helps the buyer and the supplier too in the long run. Each one is willing to come to the rescue of the other in times of hardship and economic downturns.
Strategic sourcing thus plays an important role in helping business firms to remain competitive and managing their costs.
How does one become a Sourcing Consultant?
If you’re interested in all that has been described above and think that you can excel in such a job, you should first try to get a college degree in either business management, finance, economics or supply chain. It also helps to get a Project Management certification and also certifications from APICS (The Association of Operations Management – founded in 1957 as the American Production and Inventory Control Society). They offer several certifications such as CPIM (Certified in Production and Inventory Management) and CSCP (Certified Supply Chain Professional). You need to acquire good market knowledge, be up to date and well read about industry trends. One also needs to gain insights on how various firms run their sourcing and procurement divisions.
The usual progression and learning curve that one may go through to get to the level of a Sourcing Consultant or Manager is depicted below:
One usually begins a career in this field by working under an experienced sourcing & procurement professional. You start by learning how to analyze the spend for a company. Understanding the type of spend spread within the different categories of products and services. Extract data reports on who is buying, what are they buying, from whom are they buying, what are the terms and where are the suppliers located. The next step is to evaluate supplier performance, do a historical market trend analysis and identifykey suppliers. Next they generate options by brainstorming and working on business cases.
Now the next step is where you learn how to float a RFQ (Request for Quote) with a few selected suppliers, learn the process of requesting bids, answering questions and analysis of the bid responses. Once a supplier has been selected, you need to draw an agreement or contract and get it signed. Purchase Orders are created and released. All this is part of transactional procurement.
As you gain more experience and knowledge, you are given a particular category to manage and thus have control over a certain portion of the spend. You learn how to negotiate and draw agreeable contracts with competitive suppliers. This way you build your category management expertise. This takes years of sourcing experience.
After spending a good 10-15 years in the field, does one get to the stage of providing professional advice and help strategize spend for a firm and become a Strategic Sourcing Expert or Advisor.