Sourcing community
Companies with low demand power can join forces in order to achieve savings. Many have opted to outsource the management of certain product groups—especially those not at the core of their value-creation process—to allow them to focus their procurement resources on issues of strategic importance. In the case of sourcing communities, companies organize themselves within a formal structure, with the intent of collaborating on a long-term basis. If the collaboration is managed properly, savings of 5 to 15 percent can be gained—and as much as 50 percent in special cases.
But sourcing communities can do more. Because they are able to share resources (for instance, analysts or infrastructure) it becomes possible to pursue sophisticated strategies, even for low-volume sourcing categories—the aims of sourcing communities are closely linked to the size of the companies involved:
Smaller companies at the same location can arrange joint purchases of technical items from one supplier, or achieve better terms for operating materials and supplies.
Medium-sized firms in favorable sourcing regions can share the effort and expense of identifying and qualifying suppliers.
Large companies can consolidate their demand for raw materials and have the materials bought on global markets by experts at the best terms.
In line with these widely differing goals, different types of sourcing communities can be identified according to a number of characteristics:
Size: A distinction is made between communities involving partners of equal strength and those with a mix of small and big partners
Geography: Is a geographical cluster what’s needed? Or a sourcing community open to companies from various regions? This is a decision that needs to be made
Sourcing category: The focus may be on just a few product groups, or it may cover virtually the entire demand of its members
Roles and responsibilities: A fundamental distinction needs to be made between sourcing communities whose activities are restricted to identifying suppliers (and perhaps negotiating master agreements), and those that also handle ordering on behalf of their members
Interests and corporate strategies: A study by A.T. Kearney finds that 81 percent of companies form sourcing communities with partners in their own industry
The success of sourcing communities depends to a large extent on the choice of suitable partners—the partners should all pursue a similar business philosophy and have similar expectations regarding the collaboration. Since working together in a sourcing community means a major cultural change for many companies, strong backing by top management is essential, especially in the beginning. The group should also be a manageable size. Although the underlying idea of a sourcing community is an aggregation of procurement volumes, small organizations with just a few members have proved to be more agile and more effective. Attention should therefore be paid to exclusivity. Irrespective of the legal structure of the sourcing community, it should be headed by a single individual who is impartial toward all the members of the sourcing community. As he or she needs to ensure a balance of interests internally and communicate externally (toward the suppliers) with one voice, the definition of management rules (for example, sourcing principles and decision-making guidelines) should take place early in the process.