Capturing Value Through Opportunity Analysis | by Andrew Hillman

Finding and extracting value from sourcing activities is becoming ever more challenging. Suppliers know all too well that buyers will try and negotiate the best deal and sourcing teams are under more pressure than ever before to extract savings and efficiencies from the supply chain.

A tried and tested method of extracting value from sourcing initiatives is a structured Sourcing Opportunity Analysis. This process, adopted by Bespoke, has realized meaningful savings and supply chain efficiencies on the sourcing projects we have worked on.

What is an Opportunity Analysis?

Opportunity Analysis is an initiative that attempts to identify ways to capture value through sourcing. These opportunities are identified after analysing the business requirements, supplier spend, current sourcing processes and other data sources. 

An Opportunity Analysis initiative can differ in the number of categories in scope and type of outcome:

Category Opportunity Analysis

- One category in scope of Opportunity Analysis

- After the Opportunity Analysis initiative, a new category or commodity team or sub-team is typically formed to capture the identified opportunities, including:

   - Quick wins and Gems

   - Process improvements

   -Cross-divisional savings opportunities

   -   Other actions specific to business dynamics and needs

Divisional/Department/Product/Geographic Opportunity Analysis

- Where there are many categories in scope of Opportunity Analysis

- At the end of the Opportunity Analysis initiative a high-level recommendation for each category or commodity group may include the following:

   - Form a new category or commodity team around a specific category or are of spend

   - Join an existing commodity team

   - Use an existing, preferred supplier and a standard agreement

   - Other actions specific to business dynamics or needs

Why Perform an Opportunity Analysis?

The purpose of an Opportunity Analysis initiative is to facilitate the identification and capture of sourcing process improvements and savings opportunities. These opportunities can come in many forms, such as:

- Improve sourcing processes

   - Increase efficiency of internal procurement processes and eliminate non-value add activities

   - Improve supplier processes to reduce their cost to provide goods and/or services and increase their efficiency

   - Enable an effective supplier relationship management program

- Expand scope of existing supplier agreements

   - Reduces risk and liability

- Capture value for the organisation

   - Pay less for current products or services

   - Receive more products, services, or additional value at the current price paid

   - Spend more absolute money while realising savings by paying below competition/market

- Train and lead non-procurement colleagues in sourcing skills and processes to create “sourcing champions” throughout the company.

Opportunity Analysis is the starting point in any Strategic Sourcing Process. For category teams, an Opportunity Analysis is a critical part of the first step in strategic sourcing. i.e. Identify the Need and Pre-Project Planning. During the Opportunity Analysis the magnitude of the potential value and the level of difficulty are predicted so that the sourcing is effectively planned and implemented.

Tracking progress and measuring success

It is important to spend enough time anticipating how you would track progress and measuring success in a sourcing initiative before you proceed.

In your first discussions with team members on a new sourcing initiative, it is common for people to ask, “How are we going to capture savings?” or, “How are we going to track the improvements we have generated when we are done?”

Thinking about these items will help your team better understand the dynamics driving the industry or category you are evaluating and can serve as the basis for future tools for analyses.  Some tips to consider when you are contemplating how to track progress and measure success in the OA process are:

- Develop KPI’s: Identify the metrics that drive the industry or category. These often serve as the foundation for the RFI/RFP or supplier scorecards developed later.

- Define “year one” targets and “continuous improvements”: It is important to consider separately the “year one” efficiencies and the “continuous improvements” of the opportunity you are exploring. Quantitative savings are often easy to capture in year one after a new rate has been negotiated and a contract signed.

From the beginning of the Opportunity Analysis process, it is important for team members to understand that the project does not end once the contract is signed. Measuring, monitoring and reporting success is an important, ongoing component of any sourcing initiative that evidences the real value that can be extracted from procurement.

Andrew C. Hillman is Managing Director of Bespoke.

For more information about Opportunity Analysis and Strategic Sourcing e-mail Bespoke at This email address is being protected from spambots. You need JavaScript enabled to view it.
Posted on July 08, 2013

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