Based on the opportunities already identified the strategy will be developed incorporating information gathered in previous stages. The strategy produced should be proportionate to the value, complexity and strategic importance of the commodity.
Key components of a strategy with the suggested minimum requirements are listed in the Commodity Strategy Index.
Strategic Positioning of Commodity
The aim of strategic positioning is to consider the commodity from both a buyers' and suppliers' perspective in relation to:
The Strategically Positioning the Commodity slide considers the above aspects from the buyers' perspective against both business impact and supply market challenge. Understanding the Supplier's View of the Buyer considers account attractiveness and relative value of business to the supplier.
You should also consider the current and possible future state of relationships between the Buyer and Supplier to demonstrate how you intend to develop any relationship with a supplier going forward.
Having considered the above you should be able to identify the position of your commodity as either Leverage, Strategic, Routine or Bottleneck. The Strategic Positioning Action Plan provides guidance as to the procurement approach you should adopt in each of these circumstances.
The suggested approaches are designed to provide the commodity with a starting point. They must be further defined in the context of the specific commodity and opportunities identified using the best value triangle.
Compliance Issues and Strategies
As part of the commodity strategy you should consider how you will ensure compliance to the contract. Compliance requires involvement from all parties concerned throughout the Procurement Journey. Governance arrangements, management and budget holder behaviours within local organisations will be key.
The components of a compliance strategy should encourage optimum uptake of a new contract. Members of the UIG should champion the contract and commitment for users should be obtained for the proposed strategy options.
Commodity Strategy Options
There will be a number of delivery options which are applicable to any commodity. You may wish to refer to A guide to the appraisal of possible options for further guidance. These will vary with the type, size and complexity of the requirement but are likely to fall within the range of options indicated. In all cases, you should consider a 'Do Nothing' option as a benchmark.
The commodity strategy should take full account of applicable guidance, policies and legislation. For example, commodities acquired from the private sector may need to be advertised in accordance with the organisation's policies and/or with EU public procurement law (see EU Public Procurement Guidance).
The commodity strategy should include a summary of options that clearly details the benefits, costs and risks associated with each option and demonstrates compliance with any legal obligations. This should enable the objective selection of the commodity strategy to be pursued in the short, medium and long term.
Information on estimating benefits within a commodity area can be obtained from sources such as benchmarking, market testing, market trends, past discounts and past experience.
Costs to implement sourcing strategies include contract switching costs, supplier switching costs, manpower investment, communications and roll out and cost of going to tender.
The Options Appraisal summarises the various delivery options considering the benefits and risks of each before selecting an option for recommendation.
The recommended option must satisfactorily meet the requirements, be affordable, viable and agreed with the UIG.
Contract Implementation/Contract and Supplier Management
There are separate stops on the Procurement Journey on Contract Implementation and Contract and Supplier Management, however your approach must be considered during this 'Develop Commodity Strategy' phase. Consideration must be given to how the proposed options will operate throughout the life of the requirement. For example, if you decide to utilise an existing contract or framework agreement the contract implementation and management aspects of the arrangement will be covered in the framework terms and conditions and must be complied with in full.
You must think about how the new goods or services will be introduced into the organisation or requirements migrated from your existing arrangements to the new arrangements. You should also consider your transition or exit strategy for when this new contract or framework agreement comes to an end. Once fully operational you will want to manage and develop the contract and supplier(s) to ensure the desired outcomes are delivered now and in the future. Consideration must be given to the resource requirements to implement and manage the contract or framework agreement as a designated contract manager must be identified.
The contract and supplier management requirements should be detailed in the contract or framework agreement terms and conditions to ensure both parties are clear on the contractual obligations. The contract should then be managed in accordance with these terms and conditions.
The level of contract and supplier management required depends on the risk, value and complexity of the contract. The Contract and Supplier Management Assessment tool will help identify what the level of management to be applied.
Route 3 commodities will usually require a high level of management.
More details can be found under Contract Implementation and Contract & Supplier Management and should be taken into account when you move on to the Develop Documents stage of the process.
Strategically Positioning the Commodity
The Strategic Positioning Action Plan
Components of a compliance strategy
A guide to the appraisal of possible options
Continue Journey
