2.1 7-Step Sourcing Wave Execution & RFx Process

2.1 7-Step Sourcing Wave Execution & RFx Process

Strategic sourcing is a structured, data-driven approach to managing spend and optimizing an organization's supply base to maximize total value. Unlike tactical purchasing—which focuses primarily on placing purchase orders and expediting deliveries—strategic sourcing aligns procurement activities with broader organizational objectives, risk management protocols, and long-term supplier relationships.

To execute strategic sourcing efficiently across large portfolios, organizations organize their addressable spend into sourcing waves. Wave planning categorizes commodities and services based on market risk, contract expiration schedules, potential savings, and implementation complexity. Wave 1 typically targets "quick wins" (low-complexity, high-savings categories), allowing the procurement organization to demonstrate immediate financial return and build credibility before tackling complex, mission-critical categories in subsequent waves.

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The A.T. Kearney 7-Step Strategic Sourcing Model

The industry benchmark for executing category strategic sourcing is the A.T. Kearney 7-Step Strategic Sourcing Process. Candidates preparing for the CPSM Exam 2 must master each phase, understanding both the sequential flow and the cross-functional inputs required.

Phase 1: Profile Category ──► Phase 2: Sourcing Strategy ──► Phase 3: Supplier Portfolio
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Phase 6: Operationalize ◄── Phase 5: Negotiate & Select ◄── Phase 4: RFx Execution
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Phase 7: Continuous Improvement & Benchmarking

Step 1: Profile the Category

The foundation of any sourcing initiative is a comprehensive internal and external profile of the spend category:

• Internal Spend Analysis: Gathering historical spend data across business units, purchase order records, general ledger accounts, and supplier master files. Key metrics include total spend volume, order frequency, spend concentration across suppliers, and compliance with existing contracts.
• Specification Standardization: Reviewing current product or service specifications to identify customization, over-engineering, or fragmented part numbers that can be consolidated.
• Cross-Functional Team Chartering: Assembling a team comprising procurement, engineering, quality assurance, operations, legal, and finance to define category requirements, scope, and evaluation criteria.

Step 2: Select the Sourcing Strategy

In this phase, the cross-functional team evaluates supply market dynamics to select the optimal sourcing lever:

• Market Analysis: Applying Porter's Five Forces model (Threat of New Entrants, Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of Substitutes, and Industry Rivalry) to gauge supplier power.
• Sourcing Strategy Selection: Choosing among competitive bidding, global low-cost country (LCC) sourcing, supplier consolidation, strategic partnership, or re-engineering specification boundaries based on market structure.

Step 3: Generate the Supplier Portfolio

The objective of Step 3 is to establish a comprehensive long-list of potential supply partners and screen them down to a qualified short-list:

• Market Scanning: Identifying potential suppliers locally, regionally, and globally using trade directories, industry associations, and market intelligence reports.
• Supplier Qualification Screening: Issuing a Request for Information (RFI) or screening survey to assess technical capabilities, production capacity, financial stability, ESG compliance, and quality certifications (e.g., ISO 9001, IATF 16949).

Step 4: Select the Implementation Path (RFx Execution)

Once the short-list of qualified suppliers is finalized, the team issues formal solicitation documents:

• RFx Selection: Determining whether to deploy a Request for Proposal (RFP) or Request for Quotation (RFQ) based on specification clarity.
• Bid Package Issuance: Providing suppliers with non-disclosure agreements (NDAs), detailed statements of work (SOW), commercial terms, evaluation criteria, and response templates.
• Supplier Conferences: Hosting pre-bid conferences to address supplier inquiries transparently and ensure consistent understanding of requirements.

Step 5: Negotiate and Select Suppliers

Step 5 combines analytical bid evaluation with strategic negotiation to determine final awards:

• Bid Evaluation & Clean-Sheet Cost Modeling: Normalizing supplier proposals to ensure an apples-to-apples comparison. Utilizing clean-sheet cost models to unbundle labor, material, overhead, and margin.
• Multi-Round Negotiations & Reverse Auctions: Conducting face-to-face negotiations or executing dynamic reverse e-auctions to drive market pricing.
• Scenario Optimization: Running award scenario models (e.g., lowest total cost, dual-sourcing split, regional allocation) to balance cost reduction with supply risk mitigation.

Step 6: Operationalize and Integrate

Moving from contract signing to operational purchase order execution requires seamless integration:

• Contracting: Finalizing Master Services Agreements (MSAs), Service Level Agreements (SLAs), and key commercial terms (payment terms, liability caps, warranty terms).
• Catalog & System Setup: Loading contracted pricing and part numbers into Enterprise Resource Planning (ERP) or electronic procurement (e-procurement) platforms.
• Change Management & Transition: Managing the phase-out of legacy suppliers, ramp-up of new suppliers, safety stock building, and internal stakeholder onboarding.

Step 7: Continuous Improvement & Benchmarking

Strategic sourcing does not end with contract execution; it requires ongoing performance tracking:

• KPI Scorecards: Tracking supplier performance against delivery, quality, cost, and innovation metrics.
• Market Benchmarking: Regularly indexing contracted costs against broader market commodity trends to ensure price competitiveness over the contract lifecycle.
• Demand Management: Monitoring internal consumption patterns to prevent rogue spend and enforce compliance.

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The RFx Toolkit: RFI, RFP, RFQ & e-Auctions

Choosing the correct solicitation tool is critical for effective sourcing execution. The term RFx refers collectively to Request for Information (RFI), Request for Proposal (RFP), and Request for Quotation (RFQ).

Low Clarity / High Complexity ──────────────────────────────► High Clarity / Low Complexity
      [ RFI ]                       [ RFP ]                         [ RFQ / e-Auction ]
(Market Capability)           (Qualitative Solution)               (Standardized Price)

Request for Information (RFI)

• Purpose: Used in the preliminary market research phase to gather general information about supplier capabilities, market trends, technological innovations, and industry benchmarks.
• Characteristics: Non-binding, unstructured or semi-structured, no pricing commitment requested, issued to a broad list of potential vendors.
• Best Use Case: Exploring an unfamiliar market, assessing technological capabilities for a new product line, or benchmarking service capabilities prior to drafting detailed scope.

Request for Proposal (RFP)

• Purpose: Used when the buyer has a defined business problem or high-level requirement but seeks creative, customized solutions or complex service delivery models from suppliers.
• Characteristics: Solicits both qualitative solutions and commercial pricing. Evaluated using multi-attribute weighted scoring models (e.g., technical capability 40%, quality 20%, TCO 40%).
• Best Use Case: Complex IT systems integration, outsourced logistics (3PL) management, engineering consulting, or custom capital equipment manufacturing.

Request for Quotation (RFQ)

• Purpose: Used when product or service specifications are standardized, rigid, and fully defined by the buyer.
• Characteristics: Focuses primarily on commercial parameters (unit price, volume tier discounts, delivery terms, payment terms). Minimal qualitative evaluation required because suppliers are pre-qualified.
• Best Use Case: Direct raw materials, standard hardware components, MRO (Maintenance, Repair, and Operations) catalog items, and commodity chemical purchasing.

Reverse e-Auctions

• Mechanics: Real-time online dynamic bidding event where pre-qualified suppliers compete against each other to submit progressively lower prices over a fixed duration.
• Auction Types:
  • English Reverse Auction: Bidders see the current lowest bid (or rank) and submit lower bids in specified decrements.
  • Dutch Reverse Auction: The auctioneer starts at a very low price and incrementally increases it until a supplier accepts the price.
• Prerequisites for Success: Highly standardized specifications, competitive market with sufficient pre-qualified suppliers, clear total cost rules, and high spend volume to incentivize supplier participation.

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RFx Selection Framework Comparison