Good Practice Example - Sourcing Process at Federal Express

FedEx Corporation is a $20 billion market leader in transportation, information, and logistics solutions, providing strategic direction to six main operating companies. These are FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, and FedEx Services.

Prior to the purchase of the Ground, Freight, and other non-express-based services, Federal Express had reorganized all of its major indirect spend in

information technology, aircraft, facilities/business services, vehicles/fuel/ground service equipment, and supply chain logistics groups under the Strategic Sourcing and Supply group, led by Edith Kelly-Green. After the purchase of these different businesses, the supply management function was reorganized into a Center-led supply chain management (SCM) sourcing model. (“Center” refers to a Center of Excellence that focuses on centralizing sourcing strategy teams.) Over the last two years, FedEx Supply Chain Management has been focusing on leveraging sourcing and contracting for all of the FedEx family of companies. For office supplies, instead of having each company run a contract, SCM has a single corporate contract for all of the negotiation effort that allows for different transactional approaches. It has been a gradual migration to a centralized view of how procurement happens. It is central for the larger spend areas and different policy requirements.

FedEx established a seven-step sourcing process

Step 1: A user provides a requisition for an item. When the user provides the requisition, the sourcing specialist or team must establish whether it is worth putting a strategy around it. This is typically done using a return-on-investment criterion: Is the spend large enough to put a significant amount of time into sourcing the product through a full-blown supplier evaluation? For example, if the requisition is for something that turns out to be a $200,000 per year spend, the payback on it may not be worth the resources required to do a full supplier evaluation and selection process. However, if the spend is large enough, the team will conduct an assessment of the category that profiles that industry and commodity. This assessment involves researching the nature of existing purchasing activity: How much is it, who is it with, and what are the issues with existing suppliers? If it is not large enough, the user may be directed to a simple purchase order and invoice through the Ariba system.

Step 2: Assuming a large spend, based on research conducted in Step 1, the team goes into a process to select the sourcing strategy, in essence taking all of the information it has and deciding how it will approach that marketplace. Is a request for proposal appropriate? Does it need to maintain existing relationships or revisit negotiation and develop a strategy regarding the sourcing strategy?

Step 3: Assuming it is going beyond a negotiation, the team must conduct in-depth research with suppliers in that area, including qualification of the suppliers. Can the suppliers satisfy user requirements, service aspects, and so on? The end goal is to develop a list of suppliers to send RFPs to. The team conducts a supplier portfolio analysis.

Step 4: Another phase of this implementation pass is to revisit this strategy and have the team take another look at it. Has it uncovered something that will cause it to change negotiation? The team develops a strategy for negotiation; does it want to use a reverse auction or use a conventional RFP, as well as criteria for supplier evaluation? Is this still something it wants to do? If so, it proceeds with the RFP to the selected suppliers.

Step 5: After receiving RFPs, the team conducts the supplier selection and negotiation process.

Step 6: Once the team has made the selection, it needs to do the integration. This is done by applying the Ariba toolset with the supplier and identifying integration conflicts to be resolved to make the contract workable.

Step 7: The final stage in this process is to benchmark the supply market by monitoring the supplier(s) through the FedEx Supplier Scorecard system.

Questions

What steps in the purchasing process are done electronically versus on paper

Question

Good Practice Example - Sourcing Process at Federal Express

FedEx Corporation is a $20 billion market leader in transportation, information, and logistics solutions, providing strategic direction to six main operating companies. These are FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, and FedEx Services.

Prior to the purchase of the Ground, Freight, and other non-express-based services, Federal Express had reorganized all of its major indirect spend in

information technology, aircraft, facilities/business services, vehicles/fuel/ground service equipment, and supply chain logistics groups under the Strategic Sourcing and Supply group, led by Edith Kelly-Green. After the purchase of these different businesses, the supply management function was reorganized into a Center-led supply chain management (SCM) sourcing model. (“Center” refers to a Center of Excellence that focuses on centralizing sourcing strategy teams.) Over the last two years, FedEx Supply Chain Management has been focusing on leveraging sourcing and contracting for all of the FedEx family of companies. For office supplies, instead of having each company run a contract, SCM has a single corporate contract for all of the negotiation effort that allows for different transactional approaches. It has been a gradual migration to a centralized view of how procurement happens. It is central for the larger spend areas and different policy requirements.

FedEx established a seven-step sourcing process

Step 1: A user provides a requisition for an item. When the user provides the requisition, the sourcing specialist or team must establish whether it is worth putting a strategy around it. This is typically done using a return-on-investment criterion: Is the spend large enough to put a significant amount of time into sourcing the product through a full-blown supplier evaluation? For example, if the requisition is for something that turns out to be a $200,000 per year spend, the payback on it may not be worth the resources required to do a full supplier evaluation and selection process. However, if the spend is large enough, the team will conduct an assessment of the category that profiles that industry and commodity. This assessment involves researching the nature of existing purchasing activity: How much is it, who is it with, and what are the issues with existing suppliers? If it is not large enough, the user may be directed to a simple purchase order and invoice through the Ariba system.

Step 2: Assuming a large spend, based on research conducted in Step 1, the team goes into a process to select the sourcing strategy, in essence taking all of the information it has and deciding how it will approach that marketplace. Is a request for proposal appropriate? Does it need to maintain existing relationships or revisit negotiation and develop a strategy regarding the sourcing strategy?

Step 3: Assuming it is going beyond a negotiation, the team must conduct in-depth research with suppliers in that area, including qualification of the suppliers. Can the suppliers satisfy user requirements, service aspects, and so on? The end goal is to develop a list of suppliers to send RFPs to. The team conducts a supplier portfolio analysis.

Step 4: Another phase of this implementation pass is to revisit this strategy and have the team take another look at it. Has it uncovered something that will cause it to change negotiation? The team develops a strategy for negotiation; does it want to use a reverse auction or use a conventional RFP, as well as criteria for supplier evaluation? Is this still something it wants to do? If so, it proceeds with the RFP to the selected suppliers.

Step 5: After receiving RFPs, the team conducts the supplier selection and negotiation process.

Step 6: Once the team has made the selection, it needs to do the integration. This is done by applying the Ariba toolset with the supplier and identifying integration conflicts to be resolved to make the contract workable.

Step 7: The final stage in this process is to benchmark the supply market by monitoring the supplier(s) through the FedEx Supplier Scorecard system.

Questions

What steps in the purchasing process are done electronically versus on paper

Accepted Answer

Steps done electronically:
Step 1 
Step 6
Step 7