[an error occurred while processing this directive]
Go to previous section of document Link to chapter contents   Go to next section of document

Develop and Finalize Sourcing Strategy

Sourcing is the process of identifying suppliers capable of meeting particular requirements. The sourcing strategy establishes the objectives and priorities of the purchase and an assessment of risk. It serves as the crucial link between category strategy and sourcing activities. In the Develop Purchase Plan and Best Value Parameters stage, a preliminary sourcing strategy was developed; in this stage, the sourcing strategy is finalized.

Select a Sourcing Type

Supply Management (SM) should work together with the Client to select the type of sourcing that will best meet the requirement and the Postal Service's best interest. Sourcing can go through one of the following venues:

Multiple sourcing

Single sourcing

Sole sourcing

Multiple Sourcing

Multiple sourcing is the decision to utilize two or more suppliers to satisfy a requirement. Generally, multiple sourcing may be appropriate to:

Ensure supply continuity

Ensure and potentially enhance competition

Meet Client volume requirements

Select the best suppliers in those markets with rapid technology advancement and changing market leaders

Support supplier diversity initiatives

Return to top of page

Single Sourcing

Single sourcing is the selection of a strategic source from a number of possible sources to fulfill all Postal Service requirements for a particular class of goods or services. Single sourcing should be considered when there is a strategic or key supplier among the pool of potential suppliers. Single sourcing is to be distinguished from sole sourcing, which occurs when there is genuinely only one supplier that can meet the requirement. Single sourcing is justified for:

Obtaining priority service from the supplier in times of shortage

Ensuring just-in-time manufacturing, which may require a single source for quality, control, and coordination

Maintaining lower total cost on high volume

Reducing total system inventory, freight cost, and costs associated with special tooling

Obtaining more clout with one supplier

Meeting time-to-market window

Responding to emergency situations whereby response time is critical

Rewarding supplier's superior performance

Achieving overall best value for the Postal Service

When single sourcing is determined to be the strategic approach for a particular purchase, the Purchase/SCM Team should be prepared to develop a business justification validating that the single sourcing approach, as opposed to multiple sourcing, does in fact provide the Postal Service with the best overall value. As it did when the preliminary sourcing strategy was developed, the Purchase/SCM Team must also consider whether the single source strategy may potentially negatively impact the Postal Service's commitment to establish and maintain a strong competitive supplier base by putting Small-, Minority-, and Women-Owned Businesses at a competitive disadvantage, and whether, among other things the single source strategy is justified in light of these other considerations. In these instances, it will be important for the Purchase/SCM Team to gather and analyze the pertinent data that supports the single sourcing approach. The proper analysis and data to support and build a business justification for a single source strategy can be obtained through:

Conducting spend analysis

Market research

Determining the extent of competition

Return to top of page

Sole Sourcing

Sole Sourcing describes the situation in which there is only one available supplier that can fulfill the requirement, given time and other constraints (e.g., joint research and development [R&D] or an investment that effectively makes that supplier the only practicable source for the future).

Sole sourcing may be the result of a monopoly, where only one supplier exists capable of satisfying a requirement. Situations involving a monopoly must be fed back into the purchase planning process so that the Postal Service can take steps to either widen the requirement or stimulate competitive suppliers in the future. Sole sourcing may also be imposed by the Client's insistence on a specific source for a material or service or as a requirement of other stakeholders. In either case, the Purchase/SCM Team must ensure that those making the requirement are cognizant of the future risks of sole sourcing. Such risks may include greater vulnerability to rising prices and greater exposure to interrupted supply continuity.

Although sole sourcing implies an absence of competition, the procedures discussed in the Perform Solicitation-Related Activities and Evaluate Proposals tasks of Process Step 2: Evaluate Sources must be followed, because they form the basis both for negotiation and for the formal contract.

At this stage, the Purchase/SCM Team should check that all authorizations and approvals required to proceed to solicitation-related activities, especially financial, are in place.

Sourcing Strategy

A sourcing strategy will be devised in conjunction with the Client. The category strategy provides the general direction for the drafting of the sourcing strategy.

The Purchase/SCM Team should consider the following questions before embarking on the solicitation process. If the answer is "no" for all of the above, a solicitation is required. If some, but not all, of the above scenarios apply, the Purchase/SCM Team should use its best business judgment on how to proceed.

Can the requirement be satisfied most readily and effectively through comparison of published price lists or through a simple request for quotations (RFQ), with additional negotiation as appropriate?

Would a solicitation exercise be unjustified? Namely, is the proposed purchase of significantly low volume? Is the possible economic advantage relative to the cost of a solicitation process too small?

Can the requirement be added to an existing contract satisfactorily or sourced through an existing broad-range agreement?

Is there realistically only one potential supplier (sole sourcing)?

Purchase/SCM Teams may decide to use the noncompetitive purchasing method when it is deemed the most effective business practice for the given purchase. The rationale for the decision must be documented in a business case and included in the contract file. The extent and detail of the business case will depend on the particular purchase, its complexity, and its potential dollar value, but in all cases the following must be addressed:

The business scenario justifying the decision, and why it is appropriate

The extent and result of market research performed to ensure that a noncompetitive purchase is the most effective business practice

If applicable, whether the Purchase/SCM Team believes that future purchases of the goods or services should be made noncompetitively, and why

Any other issues that should be considered in the interest of sound and effective purchasing (e.g., subcontracting plans, upcoming changes in market conditions)

If a noncompetitive purchasing method is used, the business case must be approved according to the following guidelines:

The VP, SM has delegated noncompetitive review and approval authority for contracts up to and including $10 million, by letter of delegation to Portfolio managers, who may, consistent with those delegations, redelegate, by letter of delegation, some of that authority to subordinate managers and contracting officers.

If the estimated value of the noncompetitive purchase is expected to exceed $10 million, the VP, SM must give prior review and approval of either the purchase plan or proposed contract award.

The Purchase/SCM Team will decide whether to solicit for the requirement among prequalified suppliers unless suppliers have not been prequalified or such suppliers have been identified as insufficient for some reason. Additionally, at this point the Purchase/SCM Team should decide:

The relevant time frame

The need for auction (Consider Auctions topic of the Develop Sourcing Strategy task of Process Step 2: Evaluate Sources)

The sourcing type

The decisions derived are documented in the sourcing strategy.

Return to top of page

Other Topics Considered

Develop Commodity Strategy general topic

Prepare Preliminary Business Justification for the Need topic, Conceptualize Need task, Process Step 1: Identify Needs

Conduct Make vs. Buy Decision Analysis topic, Decide on Make vs. Buy task, Process Step 1: Identify Needs

Consider Auctions topic, Develop Sourcing Strategy task, Process Step 2: Evaluate Sources

Go to previous section of document Link to chapter contents   Go to next section of document