COUPA SOURCING OPTIMIZATION THE STRATEGIC SOURCING LIFECYCLE: A BRIEF INTRODUCTION MICHAEL G. LAMOUREUX, PHD CSO TABLE OF CONTENTS CHAPTER 1 AN INTRODUCTION TO STRATEGIC SOURCING ....................9 The Evolution of Strategic Sourcing .................................................... 9 Stage 1: Price Per Unit (PPU) ..........................................................................10 Stage 2: Total Cost of Acquisition (TCA).......................................................10 Stage 3: Total Cost of Ownership (TCO) .......................................................11 Stage 4: Total Value Management (TVM) .....................................................12 The 4-Phases of the Sourcing Process .............................................. 12 The Planning Phase ............................................................................ 13 The Business Case ......................................................................................13 Team Selection .............................................................................................13 Risk Assessment & Contingency Planning .............................................14 Strategy Formulation ..................................................................................14 Exit Plan Selection .......................................................................................14 Project Management & Execution Plan ...................................................15 The Sourcing Phase ........................................................................... 15 Contract Drafting .........................................................................................15 Supplier Qualification ..................................................................................15 Invitation to Tender Package and Supplier Notification .......................16 RFX and Tender Evaluation ........................................................................16 (e-) Negotiation ............................................................................................16 Contract Award ............................................................................................16 The Execution Phase .......................................................................... 17 Task Management and Workflow.............................................................17 Change Management .................................................................................17 Performance Management........................................................................17 Relationship Management .........................................................................18 Risk Management ........................................................................................18 Formal Performance Review .....................................................................18 Expiry / Renewal Management .................................................................18 The Analysis Phase ............................................................................ 19 Formal Review ..............................................................................................19 Spend Analysis & Opportunity Assessment ...........................................19 Opportunity Selection .................................................................................19 © 2018 Coupa Software. All rights reserved. 2 CSO CHAPTER 2 IDENTIFYING A STRATEGIC SOURCING PROJECT.............20 Defining an Opportunity ...................................................................... 20 Cost Reduction .............................................................................................20 Cost Avoidance ............................................................................................21 Revenue Generation ....................................................................................21 Detecting an Opportunity with Spend Analysis................................... 22 Top N ..............................................................................................................23 Next N ............................................................................................................24 Hidden Value .................................................................................................25 Verifying an Opportunity with Should-Cost Modeling ......................... 26 CHAPTER 3 PLANNING A STRATEGIC SOURCING PROJECT ..................27 Defining and Scoping the Opportunity ................................................ 27 Selecting the Event Type and Strategy ............................................... 29 e-RFX, a Deeper Dive .......................................................................... 31 Best Practices ...............................................................................................32 1) Clear Requirements ............................................................................32 2) Regular and Repeated Communication ..........................................32 3) Create a Balanced Scorecard ...........................................................33 e-Auction, a Deeper Dive .................................................................... 33 Best Practice .................................................................................................34 1) Only Invite Qualified Suppliers ..........................................................34 2) Clear Auction Definition .....................................................................35 3) Clear Reason for Supplier Participation ..........................................35 4) Follow-Through ....................................................................................35 5) Monitor The Auction ...........................................................................35 e-Optimization, a Deeper Dive ............................................................ 36 Best Practices ...............................................................................................37 1) Start Unconstrained ............................................................................37 2) Then Run a Capacity-Only Constraint Scenario ............................38 3) Then Run a Hard-Constraint Scenario ............................................38 4) Then Run a Scenario With All Desired Hard-and-Soft Constraints .....................................................................38 5) Finally, Run What-If Scenarios Until An Acceptable Solution is Found ..........................................................38 Identifying The Project Team: Roles and Responsibilities .................. 38 © 2018 Coupa Software. All rights reserved. 3 CSO CHAPTER 4 EXECUTING A STRATEGIC SOURCING PROJECT ................39 Structuring the Event .......................................................................... 39 Supplier Identification and Qualification .................................................39 Phases and Timelines .................................................................................40 Documentation and Communication ......................................................40 Lots, Line Items, and Bid Types ................................................................40 Bid Forms and Data Sheets .......................................................................40 Tendering and Evaluating the RFX Responses ................................... 41 Evaluate Non-Quantitative Non Bid Data and Bid Data ........................41 Perform Completeness and Reasonableness Checks .........................41 Use Factors, Rankings, and Scorings ......................................................42 Useful Reports ..............................................................................................42 Running the Auction ........................................................................... 43 Select the Auction Characteristics ...........................................................43 Executing with Preparedness (Best Practices for Supplier Participation) ..............................................44 Picking the Winners .....................................................................................45 Communicating the Results ......................................................................45 Using Decision Optimization .............................................................. 46 Defining the Model .......................................................................................46 Calculate the true total cost with formulae and fixed/supplementary costs ............................................................46 Codify all of the absolute constraints ..................................................46 Capture the desired constraints ............................................................47 Chart the What-If Scenarios...................................................................47 Running the Model ......................................................................................47 Dealing with Missing Data ......................................................................47 Removing Outliers and Bad Data ..........................................................48 Infeasibility and Conflict Resolution .....................................................48 Analyzing the Results ..................................................................................49 Comparing Scenarios and Running Reports ......................................49 Post-Processing