Building a Successful Strategic Sourcing Program for Indirect Materials

In breathing life into its indirect sourcing efforts, medical devices leader Respironics is relying on internal change agents and external expertise


Halloran views the cross-functional training as a key factor in the long-term success of the initiative. "Making sure all the stakeholders involved get some training and exposure to what it's going to mean to them to be either a team member or a team leader [on a sourcing project] helps make sure that there are no misconceptions about the project," he says. "And getting that organizational buy-in before anything is implemented ensures that everybody at least has the opportunity to participate in the process. That makes it easier to sell future projects."

The training also helped Respironics' staff across functions understand the importance of what Rudzki calls "speaking with one voice" in communications with suppliers. "Every conversation with a supplier, no matter how innocent or ‘technical' it might appear, is part of the negotiation process," Rudzki says. The "one voice" methodology, which Greybeard has turned into a DVD that the firm provides its consulting clients, constitutes a uniform business process for interacting with suppliers. It ensures that all contact points within an organization are identified and brought into the sourcing process. Under this methodology, all meeting and conversations with the supply base are planned, with objectives and a script. The goal is to prevent a supplier's sales staff from doing an end-run around the sourcing team to gain information from employees who might not even realize they are tipping the hand of one vendor or another. It also reinforces the buy-in of all stakeholders in the process.

Pilot Project

The first strategic sourcing project at Respironics targeted the print category, encompassing copying, office printing and fax. Greybeard provided a full-time advisor to help guide the manufacturer's sourcing team through the process for this kick-off project, as well as to provide subject-matter expertise. Halloran believes that it was important that the Greybeard consultant be involved with the project as a resource, but that the primary driver of the project remain a staff member within Respironics. "The owner of the process has to be an internal person," he says. "Change has to come from inside, otherwise there would be a lot of resistance. And ultimately we desired to become self-sufficient as far as the process."

The objectives for the print project centered on delivering overall better value rather than solely reducing the price. Halloran points to this "total value" approach as another success factor for this kind of initiative. "When people that have not been involved with sourcing hear that we are going to get involved in a project," Halloran explains, "they may assume that we're going to put something out to bid and get a lower price, but that they're going to wind up with something that's worse than what they have today." The "total value" approach helps counter these assumptions.

Rudzki's curriculum for the training that Greybeard provided to Respironics included guidance on how to define the value that a sourcing project is delivering above and beyond any unit-price cost reductions. These beyond-price benefits are typically more difficult to measure than price cuts reflected on an invoice, but just making stakeholders aware of the different types of added value that a project can deliver often is enough to break down resistance to engaging in a strategic sourcing exercise, Halloran says. And while he preferred not to discuss specific numbers, Halloran confirmed that the office print project delivered a significant return. "We've certainly been able to deliver a better product, with more capabilities and more functionality, for a much lower bill at the end of the day, along with better service and better support." Moreover, he adds, "We've been able to demonstrate the concept of better value."

In the case of another category, outsourced engineering, the process itself has been the value. The procurement team developed a U.S. standard process template for use in sourcing outside design work, including request for proposal and analysis of the historical performance of approved suppliers. Replacing disparate, undefined processes with a ready-made template for end users might not necessarily produce dollars and cents savings, but Halloran contends that it ultimately will save engineering time and translate into shorter development cycles and faster time-to-market.

Building the Home Team

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