Procurement, Sourcing, and Supplier Management
Procurement, sourcing, and supplier management tests the strategic sourcing process, category segmentation, cost analysis, supplier selection, and ongoing supplier relationship management. Expect questions on total cost of ownership, should-cost, RFx methods, contract types, and supplier scorecards.
Core rules
- Strategic sourcing follows a repeatable process: spend analysis, category profiling, market analysis, sourcing strategy, RFx or negotiation, supplier selection, contract, and performance management.
- Kraljic segmentation uses supply risk and profit impact: noncritical, leverage, bottleneck, and strategic categories. Spend alone does not determine the category.
- Total cost of ownership adds freight, quality rejects, inventory carrying, switching cost, maintenance, and risk to the purchase price.
- Should-cost builds the price from materials, labor, overhead, and a fair margin. It creates a negotiation baseline and exposes cost drivers.
- RFI gathers capability information; RFQ prices a defined specification; RFP asks for a proposed solution. Use the tool that matches the ambiguity.
- Supplier scorecards should use few, decision-relevant metrics with clear ownership and consequences.
Worked example
Supplier A quotes $100 per unit with $6 freight, $8 in quality rejects, and $4 inventory carrying: TCO = $118. Supplier B quotes $108 with $2 freight, $1 quality, and $2 inventory: TCO = $113. Supplier B wins on TCO by $5 even though its unit price is $8 higher. The reasoning matters: a lowest-price award to A would ignore $12 of avoidable non-price cost and would reward the wrong behavior in the scorecard.
Traps that cost marks
- Awarding on lowest unit price while claiming to use total cost.
- Measuring supplier performance with purchase price variance alone; it ignores quality, delivery, and risk.
- Classifying a high-spend item as strategic without checking supply risk.
- Ignoring switching costs, tooling ownership, and transition risk in a sourcing decision.
- Building scorecards with too many metrics so no supplier can be compared or managed.