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Supplying Principles and Practices > USPS Supplying Practices Process Step 2: Evaluate Sources > Develop and Finalize Sourcing Strategy
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.
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 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
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
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.
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.
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
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