6/23/2020

CRITICAL
LINKS
Discover what extends and
sustains your supply chain
and what will ultimately
break it!

Strategic Sourcing and Negotiation Skills

Harnessing the Potential of Sourcing Business Models for Modern Procurement

Unit-06

By: Faisal Jalal

Strategic Sourcing Internal Analysis

Expenditure category analysis
Category Material Substitution Analysis

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Expenditure category analysis
Category Material Substitution Analysis
The objective here is to determine if alternative products can fulfill a company’s
purchasing requirements.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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3

Strategic Sourcing Internal Analysis

Expenditure category analysis
Category Material Substitution Analysis
The objective here is to determine if alternative products can fulfill a company’s
purchasing requirements. Substitution may occur in three areas:

• Products that function the same but cost less

• Standardization of materials
• Product redesign

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Material Substitution Worksheet

Expenditure category analysis
Category Material Substitution Analysis
The objective here is to determine if alternative products can fulfill a company’s
purchasing requirements. Substitution may occur in three areas:

• Products that function the same but cost less

• Standardization of materials
• Product redesign

STRATEGIC SOURCING & NEGOTIATION SKILLS

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5

Strategic Sourcing Internal Analysis

Expenditure category analysis
Current Purchasing Contract Review
The objective of contract review is to understand how they affect a company’s
purchasing behavior and competitive position; whether any constraints exist to
changing practices; and what incentives—positive or negative—they provide
for suppliers.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Expenditure category analysis
Current Purchasing Contract Review
The objective of contract review is to understand how they affect a company’s
purchasing behavior and competitive position; whether any constraints exist to
changing practices; and what incentives—positive or negative—they provide
for suppliers. When reviewing a contract, key considerations should be given to
the following:
• Terms
• Pricing
• Volume
• Admin
• Changes

STRATEGIC SOURCING & NEGOTIATION SKILLS

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7

Strategic Sourcing Internal Analysis

Expenditure category analysis

Expenditure category analysis - understand your organization’s internal

spend for the information product/service you are sourcing. Does more than
one department purchase the same product?

What is the volume usage of the products which you currently purchase?

What is your current pricing agreement and terms & conditions with each
of your suppliers?

Needs analysis - how many users of each product do you have and are you
aware of their needs and future needs? What about potential users?

Supply market analysis - what does the supply market actually look like?

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Expenditure category analysis

Multiple relationships with one supplier

STRATEGIC SOURCING & NEGOTIATION SKILLS

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9

Strategic Sourcing Internal Analysis

Expenditure category analysis

Multiple relationships with one supplier

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Several analyses can determine growth, overall trends, market power,
profitability and bargaining leverage of the supply market. Analyses that proved
useful are:
• Supply industry size and growth analysis
• Substitution analysis
• Supply industry profitability analysis
• Market fragmentation/consolidation analysis
• Supply industry technology analysis

STRATEGIC SOURCING & NEGOTIATION SKILLS

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11

Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Supply industry size and growth analysis

This determines industry trends and how they impact the market environment.
Market size and growth provides the first insights into how suppliers view their
industry and where they fit

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Supply industry size and growth analysis

STRATEGIC SOURCING & NEGOTIATION SKILLS

[email protected]
13

STRATEGIC SOURCING & NEGOTIATION SKILLS

[email protected]
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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Substitution analysis

The objective of this analysis is to understand which similar products can be

substituted and evaluate the impact of that trend on the marketplace. Two key
issues dictate product substitution:

• Customer needs
• System costs

STRATEGIC SOURCING & NEGOTIATION SKILLS

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15

Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Supply industry profitability analysis

This aims to identify industry standards for profitability and understand the
reasons for any variability or trends that impact industry pricing.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Supply industry profitability analysis

Industry profitability returns matrix worksheet

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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Market fragmentation/ consolidation analysis
An industry’s degree of fragmentation creates more sophisticated relationships and
determines proper pricing.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Supply industry technology analysis
This determines what role technology plays in an industry’s competitive dynamics
and the accessibility of that technology to all players.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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19

Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Supply industry technology analysis

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Suppliers/Customer Buying Practices
Comparing a customer’s relative strengths with a supplier’s relative strengths
may explain the different types of relationships and the power balances in
them. Two analyses in particular are worth exploring to understand the supply
industry:
• Industry customer analysis
• Buying practice analysis

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21

Strategic Sourcing Internal Analysis

Supplier market analysis
Suppliers/Customer Buying Practices
Industry customer analysis
This analysis determines the role the customer plays in the industry’s competitive
environment. Relative customer leverage may help influence underlying economic
conditions and marketplace complexity.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Suppliers/Customer Buying Practices
Industry customer analysis

Supply industry customer worksheet

STRATEGIC SOURCING & NEGOTIATION SKILLS
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23

Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Buying practice analysis
To analyze purchasing patterns within an industry, look for demand trends on a
weekly or monthly basis.

STRATEGIC SOURCING & NEGOTIATION SKILLS

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Strategic Sourcing Internal Analysis

Supplier market analysis
Market Dynamic
Buying practice analysis

Supply industry buying practices worksheet

STRATEGIC SOURCING & NEGOTIATION SKILLS
[email protected]
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