sourcing in business plan example

How to Write About Sourcing and Fulfillment in Your Business Plan

4 min. read

Updated October 27, 2023

Sourcing and fulfillment (which are direct costs) are the other side of the “what do you sell” question: How do you build that product? How do you fulfill that service? What does it cost you? Where do you buy the components? They’re critical factors for any business. 

In a Lean Plan, sourcing and fulfillment costs might be merely implied in the direct costs section of the forecast, or in a few bullet points in tactics, or operations. In a full formal plan , it might be included in the section on the operations. If you’re using LivePlan, you’d add sourcing and fulfillment as a topic within the operations section in the Execution chapter of your plan. Keep in mind, not every business will need a sourcing and fulfillment section in their plan, so only include it if you need it. 

• What are sourcing and fulfillment?

Sourcing or fulfillment are descriptions of where you get the products you sell (sourcing); how you fulfill the services you sell (fulfillment); or how you package, assemble, and ship products you sell online (fulfillment).

For products, sourcing commonly covers how you purchase from distributors, vendors of raw materials, suppliers, and so forth. For services, fulfillment commonly includes how you work with subcontractors, drivers, analysts, research sources, and so on. Fulfillment also applies to assembly, packaging, and shipping for online product businesses.

However, whether or not you include a section on sourcing and fulfillment in your business plan depends of course on the exact nature of your business.

Sourcing is important for most product businesses, but maybe not for the craftsperson selling handmade goods or hand-painted greeting cards at a local flea market. Fulfillment is important for most service businesses, but maybe not for the self-employed management consultant who does the work alone. It’s important for some product businesses—those that take orders and ship, or those that assemble products, might have both sourcing and fulfillment.

Use your common sense as you decide what works for your plan. If you are developing a more traditional plan, then the title of that section is normally “Sourcing” for products, “Fulfillment” for services, and “Sourcing and Fulfillment” if you sell products and services, or if the products you sell need to be assembled and shipped, or if you need to deal with packaging and shipping for online orders.

• Manufacturing businesses

Sourcing is likely to be important to a manufacturing company . Your vendors determine your standard costs and hold the keys to continued operation. Analyze your standard costs and the materials or services you purchase as part of your manufacturing operation. Include spreadsheet lists, bills of materials, and standard cost breakdowns. Include unit economics.

You may have additional documentation you can copy and attach as appendices, perhaps even contracts with important suppliers, standard cost breakdowns, bills of materials, and other information.

Where materials are particularly vital to your manufacturing, you might discuss whether second sources or alternative sources are available, and whether or not you use them or maintain relationships with them. This is also a good time to look at your sourcing strategy, and whether or not you can improve your business by improving your product sourcing.

• Product sales, retail, distribution, resale

The bookstore needs to buy books. The restaurant needs to buy raw foods. The hardware store needs to buy everything it sells to have the goods on the shelves. So, resellers should explain how they work with distributors if they do.

They can also call out the most important distributors, and explain the discounts and margins involved.

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• Fulfillment for products includes assembly, packing, and shipping

Some product businesses include a fulfillment function related to assembly, packing, and shipping.

For example, one of the early strategic decisions we took at Palo Alto Software was not to assemble physical products and pack and ship from our offices. Instead, we used an outside vendor, called a fulfillment house, that stored components (disks, boxes, packing materials) and did assembly and shipping on-demand, for a fee. That allowed us to focus on the software without having to manage those fulfillment functions.

The per-unit costs were higher, but we didn’t have to worry about capital costs for shrink wrapping equipment or fixed costs of employees and managers.

• Services have sourcing and fulfillment too

Sourcing is not just for product-based companies. For example, a professional service company , such as an accounting practice, medical practice, law practice, management consulting firm, or graphic design firm, is normally going to provide the service by employing professionals. In this case, the cost is mainly the salaries of those professionals.

Other service businesses are quite different. The travel agency provides a service through a combination of knowledge, rights, and infrastructure, including computer systems and databases. A restaurant is a service business whose costs are a combination of salaries (for kitchen and table waiting) and food costs.

• How to include sourcing and fulfillment in your plan

For a traditional business plan, “Sourcing,” “Fulfillment,” or “Sourcing and Fulfillment” will be a section in the product description. Include details, such as bill or materials, or distributor or vendor relationships, as needed to serve your business plan purpose.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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How to Build A Strategic Sourcing Strategy (that Goes Beyond Category and Supplier Management)

Strategic sourcing is one of the foundations of modern procurement. When executed well, it’s about holistically managing the entire acquisition process to optimize value, mitigate risks, and build stronger supplier relationships. 

For many people strategic sourcing is represented by a 7 step process. While this looks good on paper, things are rarely as straightforward as (even the smartest consultants) imagine.

While hosting the Art of Procurement podcast I’ve interviewed hundreds of experienced procurement professionals and enterprise thought leaders. While I can’t distill their knowledge into a single strategy, I can share some common elements to consider.

Let’s go deeper into the “strategic” part of strategic sourcing through some practical tips on how you can go beyond the theory and frameworks.

What is a strategic sourcing strategy?

A strategic sourcing strategy is a comprehensive plan that outlines how an organization will acquire the goods and services it needs to operate effectively to meet your business objectives. To be strategic, it needs to go beyond simply finding the lowest price and focus on optimizing value, mitigating risks, and building strong supplier relationships. 

Without clear alignment to business goals your sourcing strategy is simply a sourcing plan. The ultimate goal of a strategic sourcing strategy is to ensure a reliable supply of quality goods and services at the best possible total cost, while fostering innovation and collaboration with key suppliers for the benefit of the growth of your business.

Sourcing strategy is rooted in category strategy

It’s common that a sourcing strategy is aligned closely to a category management framework .

Not all spend categories are created equal. Each possesses unique characteristics, risk profiles, and impact on your business. Category management recognizes this diversity and emphasizes the need to segment and manage spend categories according to their strategic importance. 

One of the most renowned frameworks for category segmentation is the Kraljic matrix .  

This model categorizes items into four distinct quadrants based on two key dimensions: profit impact and supply risk:

The Kraljic matrix aides in the development of sourcing strategy by offering clear segmentation and guidance as to how to approach different categories of spend items:

• Strategic items : These are the high-stakes players in your procurement portfolio. They have a significant impact on profitability and carry high supply risks. Examples include critical raw materials, specialized components, or key outsourced services. Managing these items requires close collaboration with suppliers, long-term contracts, and risk mitigation strategies like dual sourcing or holding safety stock.
• Leverage items : These items offer high-profit impact but with lower supply risk. This quadrant often includes readily available goods and services with multiple potential suppliers. The focus here is on leveraging your buying power through competitive bidding, volume discounts, and strategic negotiation to optimize costs.
• Bottleneck items : While their profit impact may be low, bottleneck items carry a high supply risk due to limited availability or potential disruptions. Examples include specialized maintenance parts or unique services with few alternative providers. Managing these items requires ensuring supply continuity through close supplier relationships, safety stock, or identifying alternative sources.
• Non-critical items : These items have a low impact on both profitability and supply risk. They are often readily available commodities or standardized services. Procurement efforts for categories in this quadrant should focus on efficiency and cost-effectiveness, such as using e-procurement systems or blanket purchase orders.

The Kraljic matrix is just one example of a category segmentation model. Other frameworks, such as Pareto analysis or ABC analysis, can also be applied depending on your specific needs and industry. The key takeaway is that understanding and segmenting your spend categories is important for developing targeted sourcing strategies and optimizing your overall procurement performance.

Supplier segmentation strategies

Just as we categorize our spend, it’s equally important to segment our suppliers based on their capabilities, performance, and strategic fit with the organization. Supplier segmentation allows us to tailor our approach and build more effective relationships with each supplier based on their individual value and potential. 

Here are some common supplier segmentation models:

• Strategic suppliers : These are your key partners who offer not just goods and services but also innovation, collaboration, and long-term value. They are often involved in co-development, joint ventures, or exclusive supply agreements. Building strong, collaborative relationships with strategic suppliers is crucial for driving innovation and maintaining a competitive edge.
• Preferred suppliers : These are reliable suppliers who consistently meet your quality, cost, and delivery requirements. They may not offer the same level of innovation as strategic suppliers, but they provide a stable and dependable source of goods and services. Maintaining good communication and performance feedback loops is essential for nurturing these relationships.
• Transactional suppliers : These suppliers provide readily available, commoditized goods or services. The focus here is on efficiency and cost-effectiveness. Competitive bidding, e-procurement platforms, and streamlined processes are key to managing transactional supplier relationships.
• Develop/nurture suppliers : This category includes suppliers with the potential to become preferred or even strategic partners. They may be small businesses, diverse suppliers, or companies with innovative offerings. Investing in their development through training, collaboration, and early involvement in projects can lead to long-term benefits for both parties.

Supplier segmentation should align with your category management strategy . For example, strategic items often require close collaboration with strategic suppliers, while leverage items might be sourced from a pool of preferred suppliers through competitive bidding.

Sourcing strategies in procurement

Once you have a clear understanding of your spend categories and supplier segments, you can develop targeted sourcing strategies for each. Here are some common sourcing strategies and their applications:

• Single sourcing : This strategy involves relying on a single supplier for a specific category or item. It’s often used for strategic items where building a close, collaborative relationship with a supplier is crucial for innovation, quality control, or risk mitigation.
• Dual sourcing : Engaging two suppliers for the same category provides redundancy and competition, mitigating the risk of supply disruptions and encouraging better performance.
• Multi-sourcing : Utilizing several suppliers offers greater flexibility, access to a wider range of capabilities, and the ability to leverage competition for better pricing and service.
• Global sourcing : Procuring goods or services from international markets can offer cost advantages, access to specialized skills or resources, or entry into new markets. However, it also introduces complexities such as logistics, cultural differences, and geopolitical risks.
• Local sourcing : This strategy prioritizes suppliers within a specific geographic region to support local businesses, reduce transportation costs and environmental impact, or comply with government regulations.
• Nearshoring : Similar to local sourcing, nearshoring involves sourcing from nearby countries to reduce lead times, transportation costs, and cultural or language barriers.
• Outsourcing : This involves contracting external providers for non-core business functions, such as IT services, payroll, or customer support. Outsourcing can offer cost savings, access to specialized expertise, and increased flexibility.

The choice of sourcing strategy usually depends on various factors, including the nature of the item or service, market dynamics, cost considerations, risk tolerance, and your organization’s overall procurement goals.

Five ways to put your sourcing strategy into practice

Putting category and supplier segmentation into practice usually requires a structured approach and the right tools. Here are a few ways you can put your strategy into action:

• Analyze and classify spend : The first step is to gather and analyze your procurement data to identify spending patterns, key categories, and supplier performance. Spend analytics software can be invaluable for this task, providing insights into your procurement landscape and opportunities for optimization.
• Evaluate and map supplier performance : Evaluate your current suppliers based on predefined criteria such as quality, cost, delivery performance, innovation, and responsiveness. This assessment will help you segment your suppliers and identify areas for improvement or potential risks.
• Create processes and best practices: Based on your category and supplier segmentation, develop specific sourcing strategies for each segment or category. This may involve creating a sourcing calendar, identifying potential new suppliers, or establishing preferred supplier programs for key categories.
• Invest in key supplier relationships : Invest in building strong relationships with your key suppliers. This includes regular communication, performance feedback, joint innovation initiatives, and collaborative problem-solving. Supplier relationship management (SRM) software can help streamline communication and track performance metrics.
• Choose the right tools for the job . Technology plays a crucial role in supporting sourcing efforts. Spend analytics tools provide data-driven insights, while e-procurement platforms and supplier management systems facilitate communication, collaboration, and performance monitoring. Make sure you choose the right tools for your unique business needs and maturity level.

Common challenges to strategic sourcing strategies

While the benefits of strategic sourcing are undeniable, it’s very likely everything won’t go according to your perfectly planned strategy.

Here are some of the most typical obstacles you might encounter on your way along with some ways you can solve them.

Data visibility and accuracy

Strategic sourcing relies heavily on data analysis. However, many organizations struggle with fragmented data, inconsistent formats, and a lack of visibility into spend.

Solution : Invest in spend analysis to consolidate data, cleanse it for accuracy, and gain insights into spending patterns. Implement data governance policies to ensure data quality and consistency moving forward.

Internal resistance to change

Shifting from traditional procurement practices to a strategic approach can face resistance. Stakeholders accustomed to established procurement routines may perceive the change as a threat or disruption.

Solution : Clearly communicate the benefits of strategic sourcing to stakeholders, emphasizing value beyond cost savings. Involve key stakeholders in the process and provide training to build buy-in and support for the new approach.

Supplier relationship management

Building and maintaining strong relationships with a diverse supplier base requires dedicated effort and effective communication. Category managers may have very different outlooks to how strategically they can manage suppliers in their category.

Solution : Implement a consistent supplier relationship management (SRM) program to categorize suppliers, establish clear communication channels, and track performance metrics. 

Lack of skilled resources

It’s not uncommon for procurement professionals to transition to strategic sourcing roles from more operational procurement or buyer roles. For some people the shift from an operational to a strategic role may not be easy, as it also requires a shift in mindset.

Solution : Invest in training and development programs for procurement staff to enhance their skills and knowledge. Consider hiring experienced professionals or consultants to bridge any skill gaps and provide specialized expertise.

Bottom line on building a strategic sourcing strategy

In the Art of Procurement podcast I’ve interviewed hundreds of strategic visionaries and exceptional procurement professionals. While I can’t share a specific strategic sourcing strategy, one common trend is that strategic sourcing is as much about a mindset as it is about a method.

The key element to strategic sourcing is often the transition from operational procurement to an agile approach to continuous improvement. While understanding the steps involved in sourcing is important, true mastery lies in thinking strategically about your spend categories and supplier relationships in relation to your long-term business goals.

Remember, the key to success lies in continuous adaptation, data-driven decision-making, and fostering strong relationships with your key suppliers. In this journey you can set your own strategies. If you’re looking for more information to refine your own, you may find inspiration from the materials below.

Related topics and podcast episodes:

• Is Procurement Moving Away from Category Management?
• How Google’s Strategic Sourcing Team Became a Trusted Business Partner, with Tim Jones of Google.
• How to Build a Simple Sourcing Governance Process to Align Procurement Impact with Business Needs.
• Expense Management Tactics to Use when Sourcing and with Incumbent Suppliers
• Why Dual Sourcing as a Risk Mitigation Strategy May Not Be the Answer

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The Procurement Process – Creating a Sourcing Plan: Procurement : A Tutorial

The procurement process – creating a sourcing plan.

Introduction Identify Opportunities Analyze the Situation Undertake Strategic Analysis Case Study Create a Strategic Sourcing Plan

Introduction

The procurement process.

Business requirement for product or service

User need for product or service

Identify Opportunities

Opportunities are usually triggered by a business requirement for a product or service.

Material requirements might include:

• Raw materials
• Completely finished products

Service requirements might include:

• Computer programmers
• Hazardous waste handlers
• Transportation carriers
• Maintenance service providers

Users (also called internal customers ) identify a need for material or service requirements, and communicate this need to purchasing.

Analyze the Situation

Situation analysis can include “Purchase Requisitions” or “Statements of Work.”

Purchase Requisitions should contain:

• Description of required material or service
• Quantity and date required
• Estimated unit cost
• Operating account to be charged
• Date of requisition (this starts the tracking cycle)
• Date required
• Authorized signature

Statements of Work (SOW) for services specify the work that is to be completed, when it is needed, and what type of service provider is required.

• Marketing may want to purchase an advertising campaign.
• R&D may need a clinical trial.
• Human resources may need to print a brochure.

Undertake Strategic Analysis

Procurement must work with the suppliers and its internal customers to analyze the process to understand where opportunities exist to eliminate waste and increase value delivery.

Supplier evaluation

In-depth evaluation is required for major purchases. It is used for non-routine supply items of higher value. It begins with a list of potential suppliers. Existing suppliers with good track records should not be ruled out.

Supplier assessment criteria

1. Equipment and facilities

• Up-to-date?
• Ability to expand in the future?

2. Processes

• Ramp-up capabilities?
• Process cycle times?
• Reliable quality control program?
• General housekeeping?
• Working conditions?
• Status of back orders?

3. Management Capabilities

• Project management skills?
• Stable, harmonious team?
• How do they view your company as a customer?
• Long-range strategic vision?
• Leadership?

4. Information Systems

• Up to date?
• Training requirements?

Supplier evaluation criteria

1. Planning and control systems

Planning and control systems include those systems that release, schedule, and control the flow of work in an organization. As we shall see in later courses, the sophistication of such systems can have a major impact on supply chain performance. Among the questions the buying firm should ask: Does the supplier have well-developed systems for planning material, personnel, and capacity needs? If not, why not? Does the supplier track key performance measures, such as throughput time, quality levels, and costs? Are these measures compared to performance objectives or standards? How easy is it for customers to interact with the supplier’s planning and control systems? This last point is particularly important to organizations interested in effective supply chain management. When interaction is high, information about the customer’s needs flow easily to the supplier, and the customer can, in turn, retrieve important information from the supplier. Consider the relationship between Wal-Mart and Proctor and Gamble (P&G). When a Wal-Mart store sells a particular P&G item, the information flows directly to P&G’s planning and control systems. P&G can then plan production and schedule shipments accordingly. Furthermore, Wal-Mart can easily find out when a P&G shipment will arrive at one of its distribution warehouses, thereby allowing Wal-Mart to consolidate this shipment with others on the way to individual stores.

2. Environmental regulation compliance

The 1990s brought about a renewed awareness of the impact that industry has on the environment. The Clean Air Act of 1990 imposes large fines on producers of ozone-depleting substances and foul-smelling gases, and governments have introduced laws regarding recycling content in industrial materials. As a result, a supplier’s ability to comply with environmental regulations is becoming an important criterion for supply chain alliances. This includes, but is not limited to, the proper disposal of hazardous waste.

3. Minimum typical evaluations to consider

Weighted Point Method Using a Weighted Point evaluation system, purchasing can rank suppliers according to some of these criteria.

In this example, Supplier A has a score of 3/5 on quality, 4/5 on delivery, 2/5 on price, and 7 / 10 on service, with a total score of 63. Supplier B scores better than A on quality, not as well on delivery, but better on price and service. Given the associated weights on quality, delivery, price, and service that are important to the purchaser, the weighted scoring system suggests that Supplier B is better suited for this purchase, and should be awarded the contract.

Using the information provided in Case Study 2 , as well as the Excel spreadsheet, evaluate the following:

• Respond to your manager’s request by discussing the critical factors that you should consider when deciding whether to single source or multiple source this critical item.
• Provide your recommendation for awarding this contract using a formal weighted point supplier evaluation tool that you have developed.
• What other factors might a buyer or buying team consider when evaluating the worthiness of potential suppliers?

Create a Strategic Sourcing Plan

A strategic sourcing plan requires procurement to assess and manage the change so that the benefits of the procurement strategy are realized.

The plan must be created in a way that ensures:

• The benefits identified in the strategy are delivered in full and on time.
• Change will take place successfully and in accordance with a realistic time plan.
• Risks have been considered and the appropriate contingencies are built in to the overall plan.

What makes a good plan?

• Implementation is time-intensive and often has a high failure rate.
• Successful implementations are properly planned and communicated during the creation of the strategy, and then are actively executed and continually managed to completion.
• As the strategy is being developed, the procurement team will identify which areas of the business will be impacted, directly and indirectly.
• During implementation, measurement and attainment of results and the identification of key milestones help to ensure success.
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Comprehensive Guide to Strategic Sourcing by Simfoni’s Procurement Professionals

Table of Contents

Introduction to sourcing.

Sourcing in procurement is defined as a process to find, evaluate, and engage suppliers based on set criteria to achieve cost savings and best value for goods and services at a price point & terms that give the required margin to positively affect the company’s bottom line . The sourcing process is carried out using a tendering process and is applied at tactical and strategic levels with the intent to create distinctive value by finding the most appropriate suppliers at the lowest cost to gain a competitive advantage. Simfoni.com Tweet

In most organizations, the process of sourcing products or services is the first step in the supply chain process. Sourcing involves finding a balance between the quality of products and raw materials required and affordability. The goal for most procurement teams is to spend less and increase the bottom line .

But how can you ensure that you have the right strategies and techniques to make sourcing a profitable process?

In this sourcing 101 guide, we break down everything involved with sourcing , from finding products to finding the most suitable suppliers to buy those products from, right through to the delivery types involved from sourced supplier to customer. So, let’s dive in.

What is Sourcing?

We’ll start the guide with a comprehensive definition of what sourcing is.

Typically, sourcing is finding the most suitable supplier that provides the quality of goods or services at a price point that gives the business owner the profit margins they need. Sourcing and procurement management fit together like hand and glove. But before you can procure goods, it is essential to:

• Find prospective suppliers
• Implement a rigid vetting process

This ensures that no mistakes are made during the sourcing process because it can be costly to backtrack. While most business leaders focus primarily on the cost reduction benefits of strategic sourcing , in today’s competitive market, leading companies have begun to look at creating value while not ignoring cost and waste reduction.

Three factors are central to the sourcing process, and these are:

• Cost structure
• Profit margins
• Competitiveness

All three factors affect businesses of all sizes.

The sourcing process involves:

• Collecting data on good quality sources of goods and services
• Negotiating contracts
• Market research
• Product testing for quality
• Considering outsourcing for goods
• Constituting standards that the company will use.

You must keep in mind that the end goal of sourcing is procurement. Steps in the procurement process include:

• Communications
• Negotiations

Different types of Sourcing

To implement successful sourcing , you must have a thorough understanding of your entire business strategy, i.e., you need to know what resources are required to deliver that strategy and the market forces and specific risks associated with implementing particular approaches.

Acquiring cheap goods and services should not be the only goal of sourcing . Instead, procurement teams should center sourcing activities around developing mutually beneficial relationships. Depending on your sourcing needs and the goods you are trying to acquire, you can choose to work directly with wholesalers, manufacturers, or sources from distributors.

That said, what types of sourcing should you consider?

1. Outsourcing

The most practical and straightforward example would be hiring a party outside a company to perform services or create goods that were traditionally performed in-house. This can also be done by migrating operations abroad or partnering with a domestic supplier. Both back and front office functions can be outsourced.

2. Insourcing

This type of sourcing involves you delegating a job to someone or a team within the company. Most company leaders prefer this option when available because it is an excellent cost-saving strategy that allows for on-the-ground monitoring of the quality of goods and services required.

3. Near-sourcing

This involves placing some of your operations close to where your end- products are sold.

4. Low-cost Country Sourcing (LCCS)

LCCS involves sourcing materials from countries with lower labor and production costs. This type of sourcing focuses on cutting down the overall operating expenses of an organization. China has become the go-to country for this sourcing method for most global corporations.

5. Global Sourcing

The world is now one giant marketplace. Buying goods and services from international markets across geopolitical boundaries has become an easy process. This method has many benefits and exposes your organization to different markets; moreover, you gain insight into how business is conducted worldwide.

You also can access a new range of skills and resources that may not be readily available in your country.

6. Prime/Subcontracting Arrangements

This arrangement involves a contract between a contractor and a subcontractor to perform a portion of work that is part of a larger project. All contracts are dealt under offshore law because the agreement is between two offshore entities. Procurement teams can reduce the burden of dealing with import or export restrictions

7. Captive Service Operations

Some organizations go as far as establishing and operating some form of a partly/ wholly-owned entity overseas. This method makes room for greater control and allows you to control confidentiality and security issues. However, your economies of scale will be negatively affected.  

8. Professional Service

You can recruit the professional services of occupations in the service sector requiring special training.

9. Manufacturing

The creation of new products either from raw materials or components.

10. Vertical Integration

Involves the merging of companies at different production and/or distribution stages in the same industry. So, when a company acquires its input supplier, it is called backward integration ; it is called forward integration when it acquires companies in its distribution chain.

11. Few or many Suppliers

A multi-supplier strategy is commonly used for commodity products , and purchasing is typically based on price. On the other hand, single-source purchasing refers to purchases from one selected supplier, even though other suppliers provide similar products . Sole-source procurement refers to purchases with only one supplier.

12. Joint Ventures

This is a business entity created by two or more parties. It is generally characterized by shared ownership, returns and risks, and governance.

13. Virtual Enterprise

This is when a network of independent companies (i.e., suppliers, customers, competitors) are linked by information technology to share skills, costs, and access to one another’s markets.

As you can see, there are many types of sourcing . The various options mean that the management of these relationships differs significantly.

Responsible Sourcing

Responsible sourcing has become a hot topic in today’s global supply chain market. This type of sourcing is a voluntary commitment by companies to consider social and environmental considerations when managing their relationships with suppliers.

The modern consumer and investors are increasingly mindful of the ethical creation and sustainability of a product. They are more likely to invest in more socially sustainable goods and services than ever. Sourcing teams and company leaders who want to remain competitive and protect their brand have to incorporate social, environmental, and ethical practices in their business, taking responsibility for the entire life cycle of products and protecting workers’ rights during the production process.

But this is easier said than done. The complexity of global supply chains can make it difficult for companies to be aware of or understand the potential risks affecting their business and their suppliers.

Thankfully there is a solution. Your business needs to be able to trace a product or service through each stage of the supply chain and work with their company and suppliers to ensure working conditions are fair and environmental practices are sustainable.

What is Impact Sourcing?

Another modern trend in sourcing is impact sourcing . This type of sourcing is a socially responsible arm of the Business Process Outsourcing (BPO) and Information Technology Outsourcing industry that aims to employ people with limited opportunities for sustainable employment.

The impact sourcing sector utilizes workers from poor and vulnerable communities to perform functions with lower and moderate skill requirements such as scanning documents, data entry work, data verification and cleaning, video tagging, and microwork.

Sourcing Models

A sourcing business model combines a company’s relationship model and defines how you will formally control your supply source and economic model. This, in turn, determines how you will handle the economics of the relationship. The 7 Sourcing Business Models are:

1. Basic Provider Model:

Used when the primary purpose is to purchase goods and services at the lowest possible cost.  

2. Approved Provider Model:

Used when you want to take advantage of high-volume discounts with suppliers with a proven track record. 

3. Preferred Provider Model:

Offers value-added capabilities or volume discounts with a set supplier, and this is usually due to a longer contract.

4. Performance-Based/ Managed Services Model:

This is dependent on the supplier who has to drive efficiency and deliver predefined service levels. This model allows for a longer contract as the supplier tends to benefit as long as they sustain the quality of their goods or services.

5. Vested Business Model:

Is a collaborative model that requires both sides to ensure that everyone is committed to the success of the other. These relationships tend to last well over 10 years and optimize innovation and risk management.

6. Shared Services Model:

Is an investment-based model that is developed by companies that are seeking to create their own internal supplier

7. Equity Partnerships:

Are legally binding through formal structures. In this model, the organization invests directly into another company to build capability.

Why is Sourcing Important?

The first step in getting the supply chain right is sourcing the products and services. There is also a need to balance the quality of the products and the raw materials that one needs. Moreover, affordability of the products is also an aspect that needs to be considered where sourcing is concerned, as it directly impacts the bottom line .

A well-executed sourcing process allows your company to establish consistent and predictable supply chains; in turn, shelves stay well-stocked, keeping customers happy. When sourcing is done right, it can positively affect your brand image and help create brand loyalty.

Strategic sourcing also helps in cost management by providing benefits for both the buyers and the suppliers. Negotiating lower unit pricing for high volume purchasing reduces the cost of goods. It allows the business to keep its pricing competitive. On the other hand, the suppliers benefit by having a consistent outlet for their goods, making planning and cash flow more dependable.

Benefits of Sourcing

The four benefits of sourcing are:

1. Cost-Saving

The first and most popular benefit of strategic sourcing is the amount of money that organizations can save by selecting and choosing suppliers that will offer the highest value at the best price possible. This will have a domino effect and positively affect your bottom line .

2. The honing of ideal suppliers

Effective implementation of a sourcing process has its foundation on the quality of the suppliers involved. Procurement teams should have on-hand supplier profiles and understand the core capabilities of the suppliers they choose. This allows you to match your organization’s objectives with your ideal supplier resulting in the highest value creation at the lowest possible cost.

3. The establishment of a long-term relationship with suppliers

When suppliers are valued and considered in various sourcing decisions, they will feel motivated and optimize their performance to meet your organization’s objectives.

Diversity and Inclusion in Procurement and Sourcing

Establishing diverse supply chains can have significant benefits for your company. Aside from increasing revenue, diverse and inclusive supply chains are more competitive, encourage innovation , provide new markets opportunities and deliver socioeconomic impact in local operating markets.

So how can you accelerate supply chain diversity in your company?

1. Determine where your procurement dollars are going

Developing a basic understanding of external procurement expenses is essential to building a more diverse and inclusive supply chain.

2. Identify diverse suppliers aligned with crucial spend categories.

Once you understand the significant categories of spend, you can begin broadening your pool of potential suppliers within each category. Look for platforms that can connect you with diverse suppliers . Advocacy and diversity certification organizations are an excellent place to start.

3. Establish inclusive procurement policies.

Ensure that you choose at least one diverse supplier in competitive supplier selection/RFP processes.

Procurement vs. Sourcing: What's the Difference?

There tends to be a little confusion where terms like procurement, purchasing, and sourcing are concerned. The terminology is related and sometimes used interchangeably, but each has a distinct meaning.

As a procurement or business leader, you need a complete understanding of the differences to help you gain a better understanding of the sourcing process. So, without further a due, let’s establish the differences.

Typically, procurement is concerned with acquiring the goods and services that are vital to an organization. Procurement is tasked with acquiring high-quality goods at the right time to meet company needs. The procurement process helps you gain insight and control over your company’s spending habits, minimize errors and fraudulent spending and boost efficiency by streamlining procure-to-pay -cycle.

Procurement involves multiple processes and numerous steps such as:

• Needs recognition
• Requesting goods and services
• Review and approval
• Purchase order
• Receipt of goods or services
• Receipt of invoice
• Pay invoice

On the other hand, sourcing focuses on finding the best possible supplier of goods and services and negotiating the most favorable contract terms.

Sourcing involves:

• Defining the need
• Researching the market
• Running sourcing events
• Vetting suppliers

Sourcing vs. Procurement Differences

Process components.

Sourcing is a subprocess of procurement and comes before any purchases are made. Sourcing ensures that the lowest purchase price is found while developing supply channels that provide the most significant value. To summarize, sourcing adds value to the procurement cycle by establishing solid supplier relations that help ensure consistent quality and availability of products or services.

Sourcing is less complex and has fewer moving components. It involves defining internal requirements, searching for vendors, arranging sourcing events, and assessing suppliers.

While procurement encompasses the sourcing process itself, purchasing, data analysis, contract and supplier relationship management.

The timing of both processes is different as sourcing takes place before the purchase is made or if there is a problem during the purchasing process.

On the other hand, Procurement is an end-to-end process covering all the activities before, during, and after purchasing.

Goals and Focus

The goals and focus of procurement and sourcing are also different. Sourcing is concerned with establishing relationships with the most suitable suppliers and building and maintaining a dependable supply chain. On the other hand, the procurement process combines strategic and tactical components.

Procurement mainly concerns purchasing high-quality goods and services at the lowest possible price while satisfying internal requirements. In summary, sourcing is concerned with suppliers, while procurement focuses on buying goods and services.

Sourcing is meant to support procurement by building supply chains and systems for procurement professionals to use.

Sourcing teams focus on developing relationships with vendors, while procurement teams use vendor relations to purchase goods.

Therefore, sourcing makes the flow of supplies possible, whereas procurement aims at streamlining and optimizing this flow .

The sourcing team negotiates the pricing and quantity of products and goods with suppliers, and then the procurement team uses this information to predict the spend and determine how much money can be allocated.

What is Strategic Sourcing?

Globalization has magnified the level of competition in the business arenas. Therefore, it has become paramount for organizations to leverage the power of globalization and improve performance . Therefore, the role of effectively sourcing goods and services from suppliers has become unavoidable.

The need for an effective and strategic sourcing process that enhances an organization’s performance and efficiency has increased due to the volatility of the global market.

So, in essence, strategic sourcing refers to the process of identifying your spend profile and supplier base to ensure that your business requirements are aligned with the suppliers. This is a proactive, holistic, and continuous evaluation and re-evaluation of the sourcing activities in your organization.

Strategic sourcing aims to decrease supply chain risk, forcing procurement teams to develop strong and positive relationships with their sourcing partners. The supplier is viewed as a crucial value partner that collaborates with the organization.

Lastly, with strategic sourcing , there is more intensive monitoring of the customer-supplier loop at every stage of its lifecycle. This means there needs to be:

• Spend analysis
• Supplier evaluation
• Supplier relationship management
• Detailed market research

This means that strategic sourcing is a long-term process and needs skilled personnel and relevant technology platforms and tools to become successful.

Learn more about- eProcurement

Benefits of Strategic Sourcing

• It increases the level of cost savings achieved by identifying and selecting suppliers that will provide the highest value at the best price.
• It allows buyers to negotiate lower unit prices for his-volume purchases, thereby reducing the cost of goods sold.
• It allows your organization to stay competitive where prices are concerned and provides continuous higher cost savings.
• It benefits the suppliers who have the assurance of predictable orders and long-term cash flow visibility.
• Companies that implement strategic sourcing have more time to focus on the core activities of the business.
• Strategic sourcing helps build stable supply partnerships, especially for businesses that rely on disruption-prone goods and services.

Steps in Strategic Sourcing

To effectively implement strategic sourcing in your organization, there are seven crucial steps you should take, including

• Building a sourcing strategy
• Analysis of supplier market
• Request for supplier information and identification of selection criteria
• Selection of suppliers and execution of contracting process
• Measurement and periodic tracking of supplier performance
• Implementation of supplier relationship management
• Identification and Categorization of Spend Profiles

1. Profile The Category

The first step is identifying the sourcing category or commodity, such as the quantity, types, and sizes of products , and determining how much was spent on products and services, current prices and suppliers, and specifications. This step also involves the creation of user profiles. For example, who they are, where they are located – and departments involved in the supply chain.

2. Supply Market Analysis

Next, you need to understand your buyer power and category to position the sourcing strategy. This involves performing a market analysis to help you determine what strategy approach better fits with the type of service you’re sourcing .

Kraljic’s Matrix is an effective method to categorize your vendors. This two-by-two matrix is mapped against two key dimensions: risk and profitability, where risk demonstrates the likelihood of unexpected events occurring that may disrupt the operations, and profitability describes the possibility of impacting the organization’s bottom line .

Once a product or service is segmented, you’ll have a better picture of how it will impact your business.

3. Build a Sourcing Strategy

In this step, you need to decide where and how to buy while minimizing the risk and cost. To get the best out of your supplier pool, you should consider both existing and potential suppliers. Make sure that you establish your business goals and the minimum requirements for suppliers.

Once you’re done with that process, you’ll have to develop selection criteria based on the suppliers that suit your requirements, capabilities, and resources.

4. Select The Sourcing Process

Now comes the time to solicit bids. Generally, many businesses use the Request for Proposal (RFP). This document solicits proposals, which is often used through a bidding process. It is written internally by your procurement team . It outlines the details of product or service specifications, requirements, pricing breakdown, legal and financial terms and conditions, and evaluation criteria.

5. Negotiate and Select Suppliers

Typically, you’ll have a whole host of suppliers that respond to your RFP. So, you need to ensure that you shortlist the most potential suppliers, then interview for clarification or asking more details if required. The more information you gather from each supplier, the better your decision.

Moreover, all information can also be easily accessed if necessary, reducing or eliminating long email chains and lengthy conference calls.

6. Implementation and Integration

After negotiation, the next step is to choose the suppliers you want to partner with. Just make sure that you notify the suppliers that will be involved in the implementation stage.

It’s essential to involve your suppliers in your meetings or discussions during the implementation stage, ensuring they are in the loop.

7. Benchmarking

It is essential to measure the supplier’s performance over time – starting with benchmarking the current status of the product, continuously monitoring the results, and ensuring the goal is being achieved. By doing so, you can quickly identify any issues during implementation and notify your supplier to address the problem in a way that has the lowest business impact .

How to Conduct Sourcing?

The supplier you choose can positively or negatively affect your business’ reputation, so consider that your supplier is a business partner. You need to trust that supplier and rely on them as they substantially impact your business. That said, there are specific characteristics that you should be looking at, and these are:

• How long the supplier has been in business and their experience
• The supplier’s ability to negotiate prices
• The supplier’s adaptability when changing order quantities and delivery time frames
• Delivery times
• Range of available products and/or services
• Traceable customer reviews
• Accommodating customer service
• Financial stability

The next step after selecting the supplier is to research and secure an agreement. This means meeting suppliers face to face for price negotiations. It is essential to strike a deal that benefits both sides with strategic sourcing . Discussions concerning turnaround time, payment terms, cancellation terms, and minimum order quantities are crucial.

Next, your vendor contract must cover the following elements:

• Description of the products or services the supplier agrees to provide
• The standard of quality of the goods or services should be
• Duration of the contract term
• Payment terms
• Indemnity , should there be loss arising from negligence
• Repercussions should there be a breach of contract

Determination of payment terms is a must as this can affect the cash flow of both businesses. The ability to guarantee payment with shorter time periods ensures that you get deal points. Additionally, delivery times and locations must be expressly agreed upon as miscommunications and delays can cause costly disruptions.   

Remember to choose the supplier who has a delivery model that works for you. You can select the Continuous Replenishment Model, where the supplier makes deliveries according to a predetermined agreement and schedule.

Alternatively, you can pick the Just In Time Delivery Model, where the company receives supplies as needed. Lastly, the On-Demand Delivery Model is where the supplier delivers goods when requested or demanded by the customer.

What Is Tactical & Strategic Sourcing & What Are the Differences?

Strategic sourcing differs from tactical sourcing as tactical sourcing aims to achieve the lowest possible cost without considering other factors like:

• Supply chain risk mitigation
• Public perception of supplier
• Materials used in products
• Personal use for services

Strategic sourcing is primarily focused on the comprehensive and long-term system of sourcing . It is used to help meet current and long-term business objectives.

As discussed before, the main goals of strategic sourcing are:

• Cost-cutting and reduction of risk
• Management of supplier relations

On the other hand, tactical sourcing is short-term-focused and very hands-on. It is characterized by fast requisitions, quotations, and order processes to ensure a quick turnaround, high quality, and the lowest price possible.

Small businesses, manufacturing companies, and older companies favor tactical sourcing . The primary benefit of using tactical sourcing is that it is not as complex as strategic sourcing . However, one drawback is that market research is limited, and vendor relationships are not developed. Your business may miss out on negotiation opportunities, partnerships, and process improvements. 

How to Develop a Sourcing Strategy?

So, how do you practically source quality suppliers? The first step always starts with creating a solid sourcing strategy.

Generally, procurement teams need a long-term sourcing strategy that details how the business will establish and uphold the continuous flow of the targeted goods and services to your company’s supply process. Additionally, the strategy must address how you will edge out the competition looking for the same goods and services.

But is there really a need for a sourcing strategy? The answer is yes! So, how do you get started?

Here are the steps to writing a sourcing strategy

1. Catalog and specify what needs to be sourced

Sourcing teams need to write up a list of the resources, goods, services, raw materials , and functions that should be included in your sourcing strategy. Make sure to consider both present and future needs.

2. Document your current sourcing model

This step involves thoroughly analyzing who currently supplies goods or the service to you. Take note of whether the supplier performed well and how your relationship has been. Proceed to review how much you are currently spending and what value you derive from that supplier.

3. Choose a sourcing model.

From your list in step 1, determine on a scale of 1 to 10 how important your desired goods and services are to your business. Categorize them into critical or non-critical and decide whether or not they support your flagship product or are in service of some add-on product. This should help you pick a suitable sourcing model for your organization.

4. Analyze current sourcing vs.desired sourcing performance

Analyze the performance of your current sourcing model vs. your desired sourcing model. You now need to review how well your current sourcing methods are meeting your goals and if they meet your desired sourcing goal presently and long term.

5. Evaluate

This step involves analyzing which supplier has the closest alignment between your current sourcing method and the desired method of sourcing , according to your strategy.

6. Develop an execution plan

Having identified the changes you would want to make to your sourcing process to match it with your desired strategy, it is now time to draw up an action plan and develop a roadmap for implementing those changes. 

Some steps you could include in the roadmap are:

• Recruiting staff with relevant knowledge and expertise
• Looking for and evaluating new vendors
• Rethinking your relationship with the vendor
• Developing your team in areas you want to invest in or innovate
• Phasing out any products or services that no longer add value
• Improving on or working on your competitive advantage in your field as an organization

7. Review, refine and revise.

This stage involves continuous data analysis to ensure that your sourcing process is as efficient as possible. This data analysis can help you determine if any areas need further improvement to ensure that your supply chain is profitable, competitive, and resilient.

Improving Sourcing Effectiveness

Let’s now take a look at how organizations can improve the effectiveness of their sourcing process. Generally, there are 10 key aspects that you should consider when aiming to improve the relationship with suppliers and create long-term success for all parties involved. These aspects are as follows:

• Approach sourcing as an ongoing process and not a final destination
• Develop contracts that benefit both parties.
• Identify all costs and their impact on risk and price
• Understand that the greater the bilateral dependencies, the greater the need for preserving continuity
• Ensure that the contract is a flexible framework, not a legal weapon
• Develop safeguards to prevent defection
• Minimize transaction costs with shared visions and predicted alignments
• Be credible
• Build trust
• Keep it simple

Sourcing and Procurement Trends

Conducting business in the current digital space requires a data -centric approach to sourcing and procurement. The current trends in sourcing and procurement are as follows :

1. Emphasis on Risk Management and Flexibility

The pandemic highlighted the importance of adaptability in business and supply chain operations. As a result, resilience and adaptability of supply chains became one of the top priorities for organizations.

Procurement specialists aim to thoughtfully evaluate and manage supply chain risks and design better contingency plans, such as establishing relations with backup suppliers and optimizing inventory.

Additionally, digital transformation and migration to cloud-based software solutions will allow organizations to improve supply chain management , become more agile and mitigate risks more effectively.

2. Sustainable Procurement

The consequences of pollution and global warming have become impossible to ignore; organizations are more likely to begin taking a sustainable procurement approach. Sustainable procurement includes consideration of local sourcing , selection of suppliers who also align with sustainability values, and switching from linear to circular supply chains to reduce waste and add to cost savings.

So, what is the future of sourcing in the post-Covid era?

Over the next decade, sourcing and procurement are likely to become an extensive part of most businesses. Experts hope that this will increase transparency, support the need for better risk avoidance, and guide companies through some of their biggest challenges.

Let’s dive into some of these challenges and see how they might shape the future of these two processes.

1. Risk Avoidance

The expectation is that procurement will start to move away from a narrow emphasis on compliance and begin to take on a more comprehensive perspective. Such a broad approach will force organizations to evaluate total risk exposure, risk transfer pricing, and investment in demonstrable risk mitigation.

To achieve these objectives, companies will have to rethink their strategies for supplier risk management. In fact, it will be necessary to adopt new metrics to streamline major sourcing and supply decisions. In turn, waste minimization and maximizing purchase value will be achieved.  

2. Sustainability

Avoid underestimating the impact of a rapidly changing market. In today’s business environment, millennials are a purchasing powerhouse. So, procurement functions will have to design supply chains that satisfy this customer base.

This process will likely involve strategies beyond basic cost-cutting measures as younger buyers are less fixated on price than previous generations and are more likely to prioritize sustainability and CSR over knockdown deals.

3. Globalization

Over the next few years, emerging markets will transform the supply and demand trends upon which we have come to depend. Hot spots to watch are China and South America, both of which are developing rapidly.

Experts are predicting that big businesses will start to construct expertise in this region and countries like Russia and India. There may be a need to hire remote “on location” managers across several emerging nations.

Conclusion: Simfoni’s eSourcing Solution

An excellent and strategic sourcing process is essential to the success of any business. Still, more than that, the implementation of automation in the sourcing process will bring immense benefits.

Simfoni’s eSourcing solution removes the inefficient, labor-intensive processes of traditional sourcing and replaces them with a unique combination of powerful, AI-backed technology and experienced sourcing professionals.

Say goodbye to problematic guesswork and manual spreadsheet analysis, time-consuming drilling through numerous spend and operations categories, or countless contract comparisons. Simfoni makes it easy to improve spend management at the source.  

As a cloud-based platform, Simfoni delivers a future-proofed, right-sizing spend management solution that puts you in control of your spend from the start. With our composable architecture, Simfoni lets you mix, match, and create your perfect platform using a wide array of sourcing and spend management modules and tools.

Run RFx events and combine them with any of Simfoni’s seamlessly integrated eAuction, auto-scoring, dynamic bidding, or decision support tools, all to manage, enhance and meet your organization’s unique sourcing and business goals. What’s more, Simfoni gets you up & running fast and will scale to meet your exact needs.

By automating your sourcing process, you ensure your business’s success.

Frequently Asked Question (FAQ)

What are three types of sourcing.

There are three primary types of sourcing :

• Direct Sourcing : Involves procuring goods or services directly from manufacturers or primary suppliers. It often applies to raw materials and specialized products .
• Indirect Sourcing : Focuses on non-production-related procurement, such as office supplies, IT services, or maintenance contracts. These goods and services do not contribute to end product.
• Single Sourcing : Occurs when a company relies on a single supplier for a particular product or component. This strategy can lead to cost savings but may pose risks if the supplier encounters issues.

What are the 5 steps of sourcing?

The five steps of sourcing typically include:

• Identify Needs: Determine what goods or services are required and create a detailed specification.
• Supplier Identification: Research and identify potential suppliers or sources.
• Request for Proposal (RFP) or Quotation (RFQ): Solicit bids or quotations from suppliers, providing them with your requirements.
• Evaluate Offers: Analyze supplier proposals, considering factors like cost, quality, delivery, and terms.
• Supplier Selection: Choose the supplier(s) that best meet your criteria and negotiate contracts or agreements.

What is called sourcing?

Sourcing refers to the process of identifying, evaluating, and selecting suppliers or sources for goods and services required by a company or organization. It encompasses activities such as supplier identification, negotiation, procurement, and contract management .

What is sourcing with an example?

Sourcing , with an example, can be illustrated as follows:

Example: A smartphone manufacturer sourcing components like microchips and screens from various suppliers worldwide. The company identifies reputable suppliers, negotiates contracts, and procures these components to assemble its smartphones. Effective sourcing ensures that the manufacturer gets the best quality components at competitive prices, contributing to the overall success of its products .

What are the methods of sourcing?

Various methods of sourcing include:

• Supplier Database: Using internal databases or external directories to identify potential suppliers.
• Tendering : Issuing tenders or RFQs to invite bids from suppliers.
• Online Marketplaces: Utilizing online platforms to connect with suppliers globally.
• Networking: Building relationships with industry contacts to discover potential sources.
• Agent or Broker: Employing intermediaries to identify suitable suppliers.
• Reverse Auctions : Conducting online auctions where suppliers compete to offer the lowest price.

What is the role of sourcing?

The role of sourcing is to:

• Identify Suppliers: Locate potential suppliers or sources for goods and services.
• Negotiate Contracts: Negotiate terms, prices, and agreements with suppliers.
• Procurement: Facilitate the purchase of goods or services from selected suppliers.
• Cost Management: Manage costs and ensure cost-effective sourcing strategies.
• Supplier Relationship: Develop and maintain positive relationships with suppliers.
• Risk Management: Evaluate and mitigate risks associated with sourcing activities .

What are sourcing rules?

Sourcing rules are guidelines or policies that organizations establish to govern their procurement and supplier selection processes. These rules define the criteria for selecting suppliers, sourcing regions, and sourcing strategies. They help ensure consistency and compliance with procurement objectives and requirements.

What is the formula for sourcing?

The formula for sourcing can vary based on specific objectives and metrics . However, a basic formula for calculating sourcing effectiveness is:

Sourcing Effectiveness = (Total Value Sourced / Total Potential Value) x 100

This formula measures the percentage of potential procurement value that an organization has successfully sourced or procured.

What is the KPI for sourcing?

Key Performance Indicators (KPIs) for sourcing may include:

• Cost Savings: Measures the cost reduction achieved through sourcing activities .
• Supplier Performance : Evaluates the performance of selected suppliers in terms of quality, delivery, and responsiveness.
• Lead Time : Measures the time it takes to source and procure goods or services.
• Supplier Diversity : Evaluates the diversity of the supplier base, promoting inclusion and reducing risk.
• Sourcing Cycle Time: Measures the time taken to complete the entire sourcing process, from identification to contract finalization.

What is a six sourcing strategy?

The Six Sourcing Strategies are a set of approaches used to optimize sourcing decisions:

• Single Sourcing : Relying on a single supplier for a specific item or component. Often used for cost savings but carries risks.
• Dual Sourcing : Utilizing two suppliers for the same item to ensure redundancy and mitigate risks.
• Multi- Sourcing : Engaging multiple suppliers for an item to diversify risk and maintain competitive pricing.
• Global Sourcing : Sourcing goods or services from international suppliers to access cost advantages or specialized expertise.
• Outsourcing : Transferring specific business functions or processes to external suppliers or service providers.
• Insourcing: Bringing previously outsourced functions or processes back in-house for greater control or cost-effectiveness.

What are the four pillars of strategic sourcing?

The four pillars of strategic sourcing are:

• Spend Analysis : Analyzing spending patterns and identifying opportunities for cost reduction and process improvement.
• Supplier Evaluation: Assessing suppliers based on criteria such as performance , reliability, and ethical practices.
• Supplier Relationship Management (SRM): Developing and nurturing positive, collaborative relationships with key suppliers.
• Contract Management: Creating and managing contracts that align with sourcing objectives and protect the interests of both parties.

What are the three main elements of a sourcing plan?

A sourcing plan typically consists of three main elements:

• Sourcing Objectives: Clearly defined goals and objectives for the sourcing initiative.
• Sourcing Strategy: The approach and methodology to be used for supplier identification, selection, and negotiation.
• Sourcing Timeline: A timeline outlining key milestones and deadlines for each phase of the sourcing process.

What is the role of a sourcing manager?

The role of a sourcing manager involves:

• Supplier Selection: Identifying and evaluating potential suppliers.
• Negotiation: Negotiating favorable terms and agreements with suppliers.
• Cost Management: Managing procurement costs and seeking cost-saving opportunities.
• Risk Assessment: Identifying and mitigating risks associated with sourcing .
• Contract Management: Creating, monitoring, and enforcing supplier contracts.
• Supplier Relationship: Building and maintaining positive relationships with suppliers to ensure reliability and collaboration.

How can organizations adapt their sourcing strategies to address changing market conditions or disruptions?

To adapt to changing market conditions or disruptions, organizations can:

• Diversify Suppliers: Explore additional suppliers or sources to reduce reliance on a single source.
• Scenario Planning : Develop contingency plans for various scenarios and potential disruptions.
• Risk Assessment: Continuously monitor and assess supplier risks, adjusting sourcing strategies accordingly.
• Digital Solutions: Leverage digital tools and platforms for real-time market insights and supplier collaboration.

What are common challenges in global sourcing. How can organizations overcome these?

Common challenges in global sourcing include many things. For example, language barriers, cultural differences, logistical complexities and regulatory compliance. To overcome these challenges organizations can do these things:

• Cross-Cultural Training: Provide training to staff involved in global sourcing to understand and navigate cultural differences.
• Local Partnerships: Establish partnerships with local experts or intermediaries in foreign markets.
• Compliance Expertise: Invest in compliance expertise to navigate international regulations and trade agreements.
• Supply Chain Visibility: Implement supply chain visibility tools to track and manage goods across borders efficiently.

Useful Resources

• Cost Reduction Strategies in Procurement.
• Effective Procure-to-Pay Process Guide (P2P Procurement).
• Guide to eProcurement software & Solutions.
• Guide to Manage Tail Spend and Improve the Bottom Line.
• Guide to Procurement Software & eProcurement Solution.
• Guide to Understanding Category Management in Procurement.
• Leveraging AI & Machine Learning in Procurement.
• Procurement Analytics & Implementation.
• Procurement Management - Key Steps and Roles.
• Procurement Marketplace - Reinventing Procurement
• Savings Tracking Process in Procurement.
• Source to Pay Process, Steps & Definition.
• Spend Analysis in Procurement: Importance, Process & Examples.
• Supplier Diversity in Procurement
• Sustainable Procurement - Importance & Best Practices
• Understanding the What, Why, & How of Strategic Sourcing.
• Procurement Auctions – How It Works, Example, and Risks.
• Supply Chain Management (SCM): How It Works and Why It Is Important
• What is Contract Management - Everything You Need to Know
• B2B Marketplace - The Ultimate Guide to Procurement Marketplace
• Spend Management - Importance & Best Practices On Business Spend Management Software & Solutions
• Strategic Sourcing – Ultimate Guide To Strategic Sourcing Processes
• Spend Cube – Ultimate Guide to Spend Cube Analysis
• Procurement Software - Automate Your Procurement Process

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Modern Spend Management and Accounts Payable software.

Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing.

We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

Cristian Maradiaga

Download a free copy of "indirect spend guide", to learn:.

• Where the best opportunities for savings are in indirect spend.
• How to gain visibility and control of your indirect spend.
• How to report and analyze indirect spend to identify savings opportunities.
• How strategic sourcing, cost management, and cost avoidance strategies can be applied to indirect spend.

Strategic Sourcing Plan: The 7 Key Steps

• Written by Lyle Del Vecchio
• 15 min read

Your business needs raw materials, components, finished goods, and services to produce the products and services you offer to your customers, as well as conduct daily business operations. 

Competing effectively in the modern global marketplace requires careful planning to create and optimize a sourcing strategy that provides not just a healthy return on investment (ROI), but value in the form of increased competitive performance, operational efficiency, and insight-driven decision-making. 

The strategic sourcing process begins with a well-developed and properly implemented strategic sourcing plan.

It might seem like a daunting endeavor, but creating and implementing such a plan doesn’t have to be an obstacle to your company’s long-term success. 

Form a team, invest in the right digital tools, and follow a few basic principles, and you’ll be well-equipped to create a strategic sourcing plan you can use to fine-tune your supply chain for maximum cost reductions, streamlined business processes, and big-time value that exceeds, rather than simply meets, your business requirements.

Why Having an Effective Strategic Sourcing Plan Matters

Doing business in the modern world is both more rewarding and more risky than ever before. Digital transformation and emerging technologies like artificial intelligence, Big Data analytics , and process automation have radically altered the ways in which businesses seek to meet the needs of their customers.

In procurement, the challenge has become maintaining business continuity despite disruptions like the COVID-19 pandemic, natural disasters, and international political upheaval. 

Every dollar you spend as part of your procurement strategy needs to generate the best possible ROI, both financially through cost reductions and lowest possible total cost of ownership (TCO), and in less tangible ways like improved supplier relationship management, bigger market share, and stronger competitive performance.

For companies of all types and sizes, strategic sourcing is a core component of overcoming this challenge.

Proactive and driven by analysis of internal processes, supply markets, and supplier performance, strategic sourcing makes it possible to meet business needs with maximum efficiency and value. 

Companies who choose to invest the resources, time, and talent required to develop a strategic sourcing strategy will improve their ability insulate themselves against unnecessary risk while freeing capital required for growth and innovation

Ideally, (your) strategic sourcing team will be made up of professionals who understand the importance of procurement and its partner accounts payable as drivers of value creation and cost savings for the business as a whole (particularly via the procure to pay, or P2P, process).

Implementing Your Own Strategic Sourcing Plan

Because it can be complex and, in some cases, require a fundamental shift in how a company does business, the first step in building an effective strategic sourcing plan isn’t diving right into a checklist; it’s assembling a specialized procurement team. 

Ideally, this strategic sourcing team will be made up of professionals who understand the importance of procurement and its partner accounts payable as drivers of value creation and cost savings for the business as a whole (particularly via the procure to pay , or P2P, process).

Better still, they should have the eProcurement tools they need to analyze their organization’s business needs, review its current supply chain management paradigm, and develop both a flexible and responsive strategic sourcing process that applies the principles of business process optimization continuous improvement to supplier relationship management , cost analysis, risk management, contract management, and finding ways to center procurement as a value driver.

One of the best ways to begin is by choosing a comprehensive, cloud-based procurement solution like Planergy. Modular, mobile-friendly, and equipped with artificial intelligence, advanced analytics, and process automation tools, such a solution makes it easier both to review your company’s current sourcing activities and develop a plan for optimizing them. 

Having a centralized data management solution, as well as the tools needed to analyze the data being managed, makes everything from benchmarking supplier performance to measuring the overall efficiency of internal workflows for refinement opportunities that will yield greater savings and value in addition to actionable insights for financial and procurement planning.

Let’s take a closer look at a typical, seven-stage strategic sourcing plan:

1. Needs Analysis

In order to identify what’s working, what isn’t, and where you need to trim the fat, the first step in achieving strategic sourcing involves benchmarking your current procurement processes (efficiency, cost-effectiveness, roadblocks and pain points, etc.) and the vendors in your supply chain (e.g., compliance and performance data, redundancies for both direct and indirect spend , etc.), as well as identifying the goals you’d like to set for improvements to both.

Having the right software tools will make this process much easier, as you’ll have access to both historical and current performance, compliance, and cost data, as well as analysis tools to mine it for insights.

2. Supply Market Analysis

At this stage, your strategic procurement team identifies the markets most likely to provide reliable, consistent, and high-quality raw materials, components, finished goods, and services. 

These markets are then analyzed for suitability and ranked accordingly based on cost analysis, spend categories (including identifying contingency suppliers for essential raw materials, goods, and services), and external factors, such as location, logistical considerations, potential political, social, and ecological concerns, etc.

3. Supplier Review

Once markets have been identified, reviewed, and categorized, potential suppliers are identified, evaluated, and ranked for suitability based on a number of factors, including:

• Financial performance and stability.
• Creditworthiness.
• Reputational issues.
• Current and historical compliance with industry and government standards.
• References supplied.

Ideally, this review will also help the team identify opportunities to eliminate wasteful redundancies and either eliminate or rehabilitate underperforming vendors from the existing supply chain while simultaneously adding contingency suppliers to help preserve business continuity and ensure supply chain resilience in the face of potential disruptions.

4. Sourcing Strategy Development

Knowing who you want to buy from is important, but you also need a strategic plan for how you intend to buy. 

Based on your organization’s overall business strategy, goals for supplier relationship management and development, and risk management strategy , you may revise existing protocols or establish new ones, including (but not limited to):

• Direct purchase via requests for proposal (RFP) or Requests for Quote (RFQ) sent to targeted vendors.
• Acquisitions: Identifying and contracting the most suitable suppliers for direct purchase for a specific term, rather than by the project.
• Strategic partnerships established through advanced contract management to create long-term agreements that benefit both parties.
• Vendor Management Key Performance Indicators (KPIs) to monitor and evaluate vendor performance, pricing, and compliance data over time.
• KPIs for internal processes and workflows to establish standards for profitability, performance, efficiency, growth, etc. while working to reduce costs and TCO wherever possible.

5. Implementation

Having developed a strategic sourcing strategy, your team will need more than a quick email to bring your organization into line with its mission. 

For example, if you’ve historically relied on manual processes and paper-based workflows, the transition to an eProcurement suite will require time, training, and support from the C-suite to succeed. 

Introducing concepts like guided buying, paperless processes, and automation of high-volume, repetitive tasks will likely mean training staff to adopt new, more efficient processes and adhere to the overall sourcing strategy in order to prevent problems like rogue spend.

In addition, even seasoned veterans may require additional training to use digital tools in executing more complex sourcing initiatives like strategic partnerships, process optimization, and revised RFP or RFQ processes. 

This is especially true if your team is implementing multiple sourcing strategies at the same time.

The best approach in this case is to execute implementation in stages:

• Information Period : Preparatory education and training for staff, management, and vendors.
• Implementation Period : New processes are implemented and monitored.
• Review Period: Evaluation of adherence to the new processes and improvements realized.
• Revision Period: Additional training and refreshers as needed to secure full buy-in; formalized key performance indicators to measure performance and refine processes over time.

6. Engaging with Suppliers and Reassembling Your Supply Chain

The supply chain you activate when you implement your new strategy will likely look very different from the one that preceded it. 

At this stage, your team has analyzed your available supply markets, identified and categorized suppliers based on the criteria you set, and is ready to execute the processes that will integrate these suppliers into your procurement process.

Communication and collaboration are especially important at this stage, as vendors need to know your expectations and the requirements you’ve set for both securing your business and doing business with you once the contract has been signed.

Ensuring everyone knows how to navigate your vendor portal, for example, will promote and preserve good relationships with current and potential suppliers while ensuring vendor information is captured in your centralized data management system from day one.

Both parties in every transaction should have an immediate and clear understanding of the expectations and obligations they bring to the negotiation table, and access to the tools they need to successfully strike a deal that meets everyone’s needs. 

New suppliers will appreciate the transparency and smooth transition; existing suppliers (especially key suppliers) will appreciate being treated like partners in your shared success.

7. Review, Refine, Revise

At this stage, the steady stream of data flowing through your eProcurement solution can be analyzed and compared to the KPIs you’ve set for vendor management and internal procurement processes. 

Through data analysis, the team can carefully review these KPIs to determine areas in need of further improvement, as well as opportunities to adjust the supply chain to improve resiliency, profitability, and competitive agility.

Source Strategically for Maximum Value

It’s always good to know you’re getting the best possible value for your dollar. So why not improve your risk management, enhance supplier performance, and turn your procurement team into a powerhouse of value creation while you’re at it?

By investing in a comprehensive procurement solution, assembling a strategic sourcing team, and following the basic tenets of strategic sourcing, you can improve supplier relationships, optimize your procurement process, lower total cost of ownership, and ensure your sourcing activities generate cost savings, competitive advantage, and a healthier bottom line for your business.

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7 Business Plan Examples to Inspire Your Own (2024)

Need support creating your business plan? Check out these business plan examples for inspiration.

Any aspiring entrepreneur researching how to start a business will likely be advised to write a business plan. But few resources provide business plan examples to really guide you through writing one of your own.

Here are some real-world and illustrative business plan examples to help you craft your business plan .

7 business plan examples: section by section

The business plan examples in this article follow this template:

• Executive summary.  An introductory overview of your business.
• Company description.  A more in-depth and detailed description of your business and why it exists.
• Market analysis.  Research-based information about the industry and your target market.
• Products and services.  What you plan to offer in exchange for money.
• Marketing plan.   The promotional strategy to introduce your business to the world and drive sales.
• Logistics and operations plan.  Everything that happens in the background to make your business function properly.
• Financial plan.  A breakdown of your numbers to show what you need to get started as well as to prove viability of profitability.
• Executive summary

Your  executive summary  is a page that gives a high-level overview of the rest of your business plan. It’s easiest to save this section for last.

In this  free business plan template , the executive summary is four paragraphs and takes a little over half a page:

• Company description

You might repurpose your company description elsewhere, like on your About page, social media profile pages, or other properties that require a boilerplate description of your small business.

Soap brand ORRIS  has a blurb on its About page that could easily be repurposed for the company description section of its business plan.

You can also go more in-depth with your company overview and include the following sections, like in the example for Paw Print Post:

• Business structure.  This section outlines how you  registered your business —as an  LLC , sole proprietorship, corporation, or other  business type . “Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews.”
• Nature of the business.  “Paw Print Post sells unique, one-of-a-kind digitally printed cards that are customized with a pet’s unique paw prints.”
• Industry.  “Paw Print Post operates primarily in the pet industry and sells goods that could also be categorized as part of the greeting card industry.”
• Background information.  “Jane Matthews, the founder of Paw Print Post, has a long history in the pet industry and working with animals, and was recently trained as a graphic designer. She’s combining those two loves to capture a niche in the market: unique greeting cards customized with a pet’s paw prints, without needing to resort to the traditional (and messy) options of casting your pet’s prints in plaster or using pet-safe ink to have them stamp their ‘signature.’”
• Business objectives.  “Jane will have Paw Print Post ready to launch at the Big Important Pet Expo in Toronto to get the word out among industry players and consumers alike. After two years in business, Jane aims to drive $150,000 in annual revenue from the sale of Paw Print Post’s signature greeting cards and have expanded into two new product categories.”
• Team.  “Jane Matthews is the sole full-time employee of Paw Print Post but hires contractors as needed to support her workflow and fill gaps in her skill set. Notably, Paw Print Post has a standing contract for five hours a week of virtual assistant support with Virtual Assistants Pro.”

Your  mission statement  may also make an appearance here.  Passionfruit  shares its mission statement on its company website, and it would also work well in its example business plan.

• Market analysis

The market analysis consists of research about supply and demand, your target demographics, industry trends, and the competitive landscape. You might run a SWOT analysis and include that in your business plan. 

Here’s an example  SWOT analysis  for an online tailored-shirt business:

You’ll also want to do a  competitive analysis  as part of the market research component of your business plan. This will tell you who you’re up against and give you ideas on how to differentiate your brand. A broad competitive analysis might include:

• Target customers
• Unique value add  or what sets their products apart
• Sales pitch
• Price points  for products
• Shipping  policy
• Products and services

This section of your business plan describes your offerings—which products and services do you sell to your customers? Here’s an example for Paw Print Post:

• Marketing plan

It’s always a good idea to develop a marketing plan  before you launch your business. Your marketing plan shows how you’ll get the word out about your business, and it’s an essential component of your business plan as well.

The Paw Print Post focuses on four Ps: price, product, promotion, and place. However, you can take a different approach with your marketing plan. Maybe you can pull from your existing  marketing strategy , or maybe you break it down by the different marketing channels. Whatever approach you take, your marketing plan should describe how you intend to promote your business and offerings to potential customers.

• Logistics and operations plan

The Paw Print Post example considered suppliers, production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan provides a breakdown of sales, revenue, profit, expenses, and other relevant financial metrics related to funding and profiting from your business.

Ecommerce brand  Nature’s Candy’s financial plan  breaks down predicted revenue, expenses, and net profit in graphs.

It then dives deeper into the financials to include:

• Funding needs
• Projected profit-and-loss statement
• Projected balance sheet
• Projected cash-flow statement

You can use this financial plan spreadsheet to build your own financial statements, including income statement, balance sheet, and cash-flow statement.

Types of business plans, and what to include for each

A one-page business plan is meant to be high level and easy to understand at a glance. You’ll want to include all of the sections, but make sure they’re truncated and summarized:

• Executive summary: truncated
• Market analysis: summarized
• Products and services: summarized
• Marketing plan: summarized
• Logistics and operations plan: summarized
• Financials: summarized

A startup business plan is for a new business. Typically, these plans are developed and shared to secure  outside funding . As such, there’s a bigger focus on the financials, as well as on other sections that determine viability of your business idea—market research, for example.

• Market analysis: in-depth
• Financials: in-depth

Your internal business plan is meant to keep your team on the same page and aligned toward the same goal.

A strategic, or growth, business plan is a bigger picture, more-long-term look at your business. As such, the forecasts tend to look further into the future, and growth and revenue goals may be higher. Essentially, you want to use all the sections you would in a normal business plan and build upon each.

• Market analysis: comprehensive outlook
• Products and services: for launch and expansion
• Marketing plan: comprehensive outlook
• Logistics and operations plan: comprehensive outlook
• Financials: comprehensive outlook

Feasibility

Your feasibility business plan is sort of a pre-business plan—many refer to it as simply a feasibility study. This plan essentially lays the groundwork and validates that it’s worth the effort to make a full business plan for your idea. As such, it’s mostly centered around research.

Set yourself up for success as a business owner

Building a good business plan serves as a roadmap you can use for your ecommerce business at launch and as you reach each of your business goals. Business plans create accountability for entrepreneurs and synergy among teams, regardless of your  business model .

Kickstart your ecommerce business and set yourself up for success with an intentional business planning process—and with the sample business plans above to guide your own path.

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Business plan examples FAQ

How do i write a simple business plan, what is the best format to write a business plan, what are the 4 key elements of a business plan.

• Executive summary: A concise overview of the company's mission, goals, target audience, and financial objectives.
• Business description: A description of the company's purpose, operations, products and services, target markets, and competitive landscape.
• Market analysis: An analysis of the industry, market trends, potential customers, and competitors.
• Financial plan: A detailed description of the company's financial forecasts and strategies.

What are the 3 main points of a business plan?

• Concept: Your concept should explain the purpose of your business and provide an overall summary of what you intend to accomplish.
• Contents: Your content should include details about the products and services you provide, your target market, and your competition.
• Cashflow: Your cash flow section should include information about your expected cash inflows and outflows, such as capital investments, operating costs, and revenue projections.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

• The business goals
• Methods to achieve the goals
• Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

• How do you want to reach your target audience?
• How do you plan to retain your customers?
• What is/are your pricing plans?
• What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

• A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
• Contain your Mission Statement which explains what the main objective or focus of your business is.
• Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
• The Team. Basic information about your company’s leadership team and employees
• Business Concept. A solid description of what your business does.
• Target Market. The customers you plan to sell to.
• Marketing Strategy. Your plans on reaching and selling to your customers
• Current Financial State. Brief information about what revenue your business currently generates.
• Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

• Who is your target audience?
• What sector or industry are you in?
• What are your products and services?
• What is the future of your industry?
• Is your company scaleable?
• Who are the owners and leaders of your company? What are their backgrounds and experience levels?
• What is the motivation for starting your company?
• What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

• What products and services you will provide
• Geographical markets and locations your company have a presence
• What you need to run your business
• Who your target audience or customers are
• Who will service your customers
• Your company’s purpose, mission, and vision
• Information about your company’s founders
• Who the founders are
• Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

• Who are you targeting? (The answer is not everyone)
• What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
• How does your product or service overcome that pain point?
• Where is the location of your business?
• What products, equipment, and services do you need to run your business?
• How is your company’s product or service different from your competition in the eyes of your customers?
• How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

• Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

• Founding Date
• Major Milestones
• Location(s)
• Flagship Products or Services
• Number of Employees
• Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

• Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

• Your target market’s needs or pain points
• The existing solutions for their pain points
• Geographic Location
• Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

• Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
• Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
• Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
• Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

• Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
• Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
• Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
• Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
• Market Share Potential: Does your business stand a good chance of taking a good share of the market?
• Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
• Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
• Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

• Is your product or service of superior quality?
• What additional features do you offer that your competitors do not offer?
• Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

• What are your successful competitors doing?
• Why is what they are doing working?
• Can your business do it better?
• What are the weaknesses of your successful competitors?
• What are they not doing well?
• Can your business turn its weaknesses into strengths?
• How good is your competitors’ customer service?
• Where do your competitors invest in advertising?
• What sales and pricing strategies are they using?
• What marketing strategies are they using?
• What kind of press coverage do they get?
• What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

• Who are the key leaders?
• What experiences, skills, and educational backgrounds do you expect your key leaders to have?
• Do your key leaders have industry experience?
• What positions will they fill and what duties will they perform in those positions?
• What level of authority do the key leaders have and what are their responsibilities?
• What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

• A detailed explanation that clearly shows how your product or service works.
• The pricing model for your product or service.
• Your business’ sales and distribution strategy.
• The ideal customers that want your product or service.
• The benefits of your products and services.
• Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
• Plans for filling the orders you receive
• If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

• Unique features
• Translating the unique features into benefits
• The emotional, psychological, and practical payoffs to attract customers
• Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

• Upsells, cross-sells, and down-sells
• Time between purchases
• Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

• The creation of new or existing products and services.
• The sources for the raw materials or components you need for production.
• Assembling the products
• Maintaining quality control
• Supply-chain logistics (receiving the raw materials and delivering the finished products)
• The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

• Are your products existing on the market or are they still in the development stage?
• What is your timeline for adding new products and services to the market?
• What are the positives that make your products and services different from your competitors?
• Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
• Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
• How much does it cost to produce your products or services? How much do you plan to sell it for?
• What is the price for your products and services compared to your competitors? Is pricing an issue?
• What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
• What is your plan for acquiring your products? Are you involved in the production of your products or services?
• Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
• Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
• How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

• What are the unique features or benefits that you offer that your competitors lack?
• What are your customers’ primary needs and wants?
• Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
• How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

• Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
• Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
• Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

• Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
• Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
• Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

• Is your choice of packaging consistent with your positioning strategy?
• What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
• How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

• What makes your competition successful?
• What are their weaknesses?
• What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

• What is your company’s budget for sales and marketing campaigns?
• What key metrics will you use to determine if your marketing plans are successful?
• What are your alternatives if your initial marketing efforts do not succeed?
• Who are the sales representatives you need to promote your products or services?
• What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
• Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

• Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
• Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
• Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
• Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
• Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
• Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
• Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
• Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

• What is your sales forecast for the next year?
• When will your company achieve a positive cash flow?
• What are the core expenses you need to operate?
• How much money do you need upfront to operate or grow your company?
• How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

• Additional data about the process of manufacturing or creation
• Additional description of products or services such as product schematics
• Additional financial documents or projections
• Articles of incorporation and status
• Backup for market research or competitive analysis
• Bank statements
• Business registries
• Client testimonials (if your business is already running)
• Copies of insurances
• Credit histories (personal or/and business)
• Deeds and permits
• Equipment leases
• Examples of marketing and advertising collateral
• Industry associations and memberships
• Images of product
• Intellectual property
• Key customer contracts
• Legal documents and other contracts
• Letters of reference
• Links to references
• Market research data
• Organizational charts
• Photographs of potential facilities
• Professional licenses pertaining to your legal structure or type of business
• Purchase orders
• Resumes of the founder(s) and key managers
• State and federal identification numbers or codes
• Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

• A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
• A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
• A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

• Table of contents
• Introduction
• Product or service description
• Target audience
• Market size
• Competition analysis
• Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

• Business opportunity
• Company description
• Industry analysis
• Target market
• Implementation timeline
• Marketing plan
• Financial summary
• Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

• The Business Profile
• The Vision and the People
• Home-Based Business and Freelance Business Opportunities
• Organization
• Licenses and Permits
• Business Insurance
• Communication Tools
• Acquisitions
• Location and Leasing
• Accounting and Cash Flow
• Opening and Marketing
• Managing Employees
• Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

• Executive Summary
• Company Description
• Service Line
• Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

• Executive summary
• Business description
• Products and services
• Operations plan
• Management organization
• Financial plan
• Conclusion / Call to action
• Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

• Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
• Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
• The Product’s Value Propositions: What does your product do? How will it be different from other products?
• Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
• Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
• Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
• Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
• Cost Structure: What is the estimated cost of production? How much will distribution cost?
• Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

• Problem: Simple and straightforward number of problems you have identified, ideally three.
• Solution: The solutions to each problem.
• Unfair Advantage: Something you possess that can't be easily bought or replicated.
• Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

• Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
• Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
• Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
• Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
• Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
• Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
• Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
• Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
• Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
• Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
• Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
• Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

• Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
• Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
• Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
• Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time.  They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans.  A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs.  Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

• 12 Key Elements of a Business Plan (Top Components Explained)
• 13 Sources of Business Finance For Companies & Sole Traders
• 5 Common Types of Business Structures (+ Pros & Cons)
• How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

Best Practices for Achieving Talent Success Maturity

Building a sourcing plan for more effective recruiting, with insight from.

Libby Sartain

Former CHRO, Professional Board Member

Libby Sartain is an independent advisor, working with companies on human resource issues. With more than 30 years of experience in human resources, she is also an author and frequent speaker, using her HR leadership and management experience at companies in technology, transportation and manufacturing. She led human resources at Yahoo! and Southwest Airlines during transformative periods. Both companies were among Fortune magazine’s “Best Places to Work” during her tenure. She is the former board chair of the Society for Human Resource Management and is on the board of Manpower Group and is the Vice Chair of the Board of AARP.

With research and insight publicly available from publicly available resources by the Society of Human Resource Management

• Who it’s for:   HR managers, recruiters
• What you’ll get:   A template for a source performance report
• Why you need it:   To find qualified candidates faster and avoid wasteful spending
• When it applies in the talent success process:   When you start looking for candidates for an opening

The first step toward hiring more A-players is finding them. This article gives you a simple, four-step process for identifying and using candidate sources and practical, easy ways to measure the effectiveness of those sources.

Candidate Sourcing: What It Is, Really

Candidate sourcing is about finding and engaging potential candidates who have not applied to your company, or who previously applied and were not hired.

Here’s a clear and complete definition of sourcing from the Society for Human Resource Management :

Sourcing is the proactive searching for qualified job candidates for current or planned open positions. It is not the reactive function of reviewing resumes and applications sent to the company in response to a job posting or pre-screening candidates.

Whether you find candidates on job boards, through social networks or employee referrals, or from other candidate-supplied information, effective and successful sourcing requires a strategic plan.

Better Sourcing in Four Steps

The four-step sourcing plan described in this article will help you source more effectively and assess the results of your efforts, so you can refine your process going forward.

Step 1: Find Potential Sources of Candidates

Step 2: create an outreach plan, step 3: track sourcing progress and effectiveness, step 4: analyze the results and apply them to the next campaign.

Of course, successful candidate sourcing can only come after you’ve created effective job descriptions for your job postings. For assistance, read our library article “Job Descriptions (and Postings!) That Sell.”

Sourcing can include everything from advertising on job boards to conducting highly targeted outreach efforts to reach very specific, narrowly qualified candidates. The list below covers a variety of major categories of sourcing channels and methods to consider for your next opening.

Start with Your Company Website

If you’re not posting every opening on your company’s website, start now.

At the least, advertising jobs on your company website is more or less free, is a best practice for compliance reasons, and is the place where many candidates who hear about your openings somewhere else will go to learn more about your company and apply for the job.

The company website is also becoming one of the primary places where people get interested about working for a company, says Libby Sartain, Former CHRO, Professional Board Member.

“The best ones,” Sartain says, “are more about marketing and advertising than they are about simply posting open jobs and giving people a way to apply.”

Get Specific

In today’s competitive job market, you should try to make the job postings on your company website as granular and targeted as possible, and use video and other media to give the most detailed and realistic job description possible.

• Rather than saying, “See our open positions,” you might say, “Are you a techie nerd and proud of it? We’re hiring.”
• For a job in the business office, you might say, “Are you a numbers geek? We’re hiring.”

Using YouTube or other programs, you can post videos to show a day on the job and at the same time, make an emotional connection with the applicant by making the job real to them.

Also, include an open invitation to job seekers on your website. All you need is a line like, “Think you’d be an excellent fit but don’t see the right opening? Click here to submit your resume for future consideration.”

Eight Other Potential Sources for Proactively Finding Candidates

Job board posting.

Online job boards shouldn’t be your only sourcing channel, but they still play an important role. The key is to use job boards thoughtfully and deliberately. Don’t just post every job to a particular board because that’s the way you’ve done it for years. The reporting tools detailed later in this article will help you evaluate the performance of your postings, optimize them, and focus your spending on boards that deliver A-players.

Also, pay special attention to job boards that allow you to brand your company rather than simply post a job description. Indeed is a good example of a board that lets you give a better feel for your company.

Boolean sourcing using Google

Boolean sourcing lets you find resumes and cover letters that are stored within personal websites, job boards, and social platforms all over the web by using a unique set of search commands. Click here for a great introduction to Boolean searching for sourcing from ERE Media.

Resume databases

Many job boards (including Monster and CareerBuilder) sell access to be able to search their database of job seekers, using keywords and other criteria. This typically costs significantly more than other online resources, but it gives you access to a much larger candidate pool. Higher-cost sources can still be cost-effective, if they deliver more qualified candidates.

Social sourcing I: LinkedIn, Facebook, and Twitter

LinkedIn, Twitter, Facebook, and other social media sites offer unique tools to proactively find candidates. With LinkedIn, you use Boolean logic and also search through user groups. Facebook’s Graph Search tool lets you search for individuals using specific queries, such as “Java programmer in Denver, Colorado.” You can similarly use Facebook and LinkedIn to find people based on their job titles and target them with messages about specific open positions (e.g., “Acme has openings for HR managers. Click here.”). You can use Twitter’s search engine to identify professionals by specific keywords, phrases, and locations.

Click here to learn how to do Boolean searches on LinkedIn.

Click here for an easy guide to using Facebook’s Graph Search by Social Media Examiner.

Click here for a good blog article on seven ways to use Twitter’s search engine.

Social sourcing II: The virtual water coolers

Whatever the occupation or profession, odds are a specialized community site exists where people hang out, swap tips, and share career advice. These include everything from huge sites like GitHub and Stack Overflow to smaller sites like EMT City and Practical Machinist. On many of these boards, you can buy banner ads, post jobs to private boards, and interact with members publicly or through private messages. One way to find them is to do a web search for “[JOB TITLE] discussion forum.”

Your company’s past applicants

The easiest candidates to find should be the ones you’ve already found. An applicant tracking system (ATS) makes it easy to create and maintain a database of candidates who were promising but didn’t work out the first time around. A good system will make it easy to conduct searches, create or maintain lists of candidates for future use, and send mailings to re-engage with them.

The people who are watching you

When was the last time you looked at the “Who’s viewed your profile” section of LinkedIn? As ERE Media says, this can be a fountain of information, because it can provide information on a few things: who is interested in your company but maybe hasn’t applied yet, and who you may have already reached out to that has looked at your profile (there’s a chance that your initial connection with them at least piqued their curiosity) and may be worth a follow-up.

Your own employees

Statistics show that your own employees are the best source of qualified candidates who also fit your company culture. Libby Sartain says that when she was head of HR for Southwest Airlines, 30 to 35 percent of their hires came from internal referrals. “And they were the best candidates over time,” she said.

Learn more about tapping into your employees to improve recruiting in our article, “Building and Running a Successful Referral System.”

Libby’s Take

Recruiters these days often rely on the internet to source and engage candidates, when that may not be the best strategy. Sometimes you need to go — physically or virtually — where your best candidates might be hanging out.

For example, when I was head of HR at Yahoo, we sent our recruiters to “hack-a-thons” to meet and get to know the best coders. At Southwest Airlines, we learned that many baggage handlers liked to work out. So, when we had openings for baggage handlers, we distributed fliers at local gyms.

I’ve worked with recruiters to find customer service agents through large churches that have job sites for their members. Local and regional professional associations are great sources for finding candidates in HR, accounting and finance, marketing, legal and other roles.

Finally, don’t forget diversity outreach. To bring in a diverse applicant pool, you may try reaching out through churches that serve a minority population or professional organizations for minority members, such as the National Black MBA Association.

— Libby Sartain, Former CHRO, Professional Board Member

After you’ve identified your potential sources of candidates, you’ll want to create a campaign plan for the job you’re trying to fill. The key parts of this plan are determining who you’re trying to find, where you’re going to go looking for them, and how you’re going to make contact.

Five Tips for Creating a Great Sourcing Outreach Plan *

Know the role.

Your first step should be to make sure you have a clear and engaging job description. Click here for our guide on building job descriptions that sell. You’ll use this in posting ads as well as writing any emails or other types of communications. Consistent messages that reinforce each other are the most effective.

Understand your audience

Knowing who you’re trying to reach is the starting point to knowing where to find them, and the most appealing way to promote your job and company to them. While everybody appreciates good benefits, what a junior engineer likes and what a senior salesperson gets excited about are likely to be different. Talk to current employees in the role and department you’re working on to understand them better and what aspects of the opportunity are most engaging.

Try multiple channels

Marketing is at its core a process of experimentation, measurement, and refinement. If you’ve always used a certain job board, use it, but try another one as well and see how the results compare. Also keep in mind that different sources — and different types of sources — may respond to different approaches. If it doesn’t work the first time, try again, but try differently.

If you’re having trouble getting candidates to apply to a certain job post, there may be a different way to accurately or more engagingly title the job. Or you may need to try emphasizing different parts of the job or highlight your company upfront. If you’re sending an email to 100 potential candidates, break it into two groups of 50 and try a slightly different subject line to each group. See which one gets more responses.

Create multiple touch points

Just because someone saw your job post once, or was sent one email, that doesn’t mean they actually got your message. Marketers today strive to deliver messages to consumers through multiple channels over a period of time to create familiarity and build engagement. Develop three to five emails or job posts and deliver them across multiple weeks, leveraging collateral and marketing materials to engage and drive awareness.

Basic data collection is critical to successful candidate sourcing. You want to monitor key metrics of your sourcing efforts to be able to determine what works and what doesn’t, and adjust your outreach plans accordingly.

A Tip for Easier Source Tracking

An easy and effective way to physically identify and manage the source of your candidates is to apply source-specific URLs to your job posts. ATSs and job boards usually allow you to generate a source-specific URL when you create a post. When an applicant applies for a job and the form asks them how they heard about the job, the form should be auto-filled with the information of the job posting, which you will be able view and manage as a tracking URL.

The simplest way to track progress and effectiveness of source campaigns is to report the results of source tracking in a sourcing performance report or a basic Excel or similar spreadsheet file. You can find a template in the next section of this article, A Sourcing Performance Report .

Below are key data points (metrics) to consider collecting to build your performance report.

With the results of your sourcing data collected in a performance report, you can begin to analyze the numbers and use that information to refine your outreach plans going forward.

Basic Candidate Sourcing Analytics

Key performance indicators (kpis).

In raw numbers (no calculation required), how did each job posting perform compared with your goals? How does this compare with your KPIs for other sourcing channels? Look at the outliers. You may need to stop using low-performing channels, or at least change your style or logic for posting there. Or you may need to consider shifting more posts to your higher-performing sourcing channels.

Again using raw numbers (no calculation required), the number of views can tell you if a sourcing channel is performing well or if it could use a little boost (like more promotion or a more enticing headline).

This is your job views divided by your applications for each job posting. This critical metric judges the effectiveness of each posting and helps you easily identify any outliers.

Interview-to-offer Ratio

Dividing the number of interviews from a sourcing channel by the number of offers you ultimately make has two important benefits. It helps you easily identify where your best candidates are coming from. And, if the number is too high, tells you that you’re interviewing too many candidates and should re-evaluate your job descriptions, how you screen your candidates, or both.

Offer-to-acceptance Ratio

Dividing the number of accepted job offers received through a sourcing channel by the number of offers you made to candidates from that same channel tells you a lot about your screening and interviewing process. If the ratio is low, it could mean there are mismatched or unclear expectations, a poor culture fit, or that candidates are taking offers from competitors or are staying where they are. Keep tabs on where you lose candidates and find ways to improve those areas.

Email Conversion Rate

Recruiting guru and author Lou Adler says a good response rate is over 50 percent. Less than this means you’re not targeting your list tightly enough or you need to reconsider your job description, your email subject line, or how the email is designed.

Diversity Ratios: Applicants, Offers, Hires

For each channel, these three diversity ratios can help you source more effectively to better meet your company’s diversity goals and inclusion programs, and comply with federal and state employment laws.

Template for a Sourcing Performance Report

A spreadsheet is a great tool to make sure you’ve gathered all the data and have it in a format to analyze the effectiveness of your sources for potential candidates — your sourcing channels. If you click on the image below, it will open an Excel spreadsheet populated with:

• Suggested sourcing performance data to collect ( See Step 3: Track Sourcing Progress and Effectiveness in the previous section of this article for more information about these metrics.)
• Recommended performance analytics and their formulas ( See Step 4: Analyze the Results and Apply Them to the Next Campaign in the previous section of this article for a deeper dive into these analytics.)

Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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Strategic Sourcing Plan Template

What is a Strategic Sourcing Plan?

A strategic sourcing plan outlines a company’s approach to acquiring materials and services. It outlines the objectives, actions, measurements and targets that a company must take to ensure that their sourcing activities are cost-effective and efficient. The plan also details how a company will manage their relationships with suppliers, mitigate supply chain risks and optimize cost savings.

What's included in this Strategic Sourcing Plan template?

• 3 focus areas
• 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Strategic Sourcing Plan template for?

This Strategic Sourcing Plan template is designed for organizations of all sizes and industries to create a plan to manage their strategic sourcing activities. It provides a comprehensive framework that organizations can use to create a plan that meets their unique needs and objectives.

1. Define clear examples of your focus areas

A focus area is a broad category that outlines the overall goals of your sourcing plan. Examples of focus areas may include Strategic Sourcing, Supplier Relationship Management and Risk Management. It is important to identify the focus areas that are most relevant to your organization and create measurable objectives and targets that are aligned with them.

2. Think about the objectives that could fall under that focus area

Objectives are the specific goals that a company wants to achieve with their sourcing plan. Each objective should be measurable, achievable and realistic. For example, under the focus area of Strategic Sourcing, an objective may be to optimize cost savings.

3. Set measurable targets (KPIs) to tackle the objective

KPIs are measurable targets that an organization sets in order to track their progress towards an objective. Examples of KPIs may include cost of goods, sourcing time, supplier retention rate, supplier satisfaction score and supply chain disruptions. Each KPI should have an initial value and a target value that can be measured.

4. Implement related projects to achieve the KPIs

Projects (actions) are the specific initiatives that an organization needs to complete in order to achieve their objectives. Examples of projects may include leveraging market dynamics, automating sourcing operations, investing into supplier development and developing a long-term strategy. It is important to create a timeline for each project so that progress can be tracked.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

The Cascade Strategy Execution Platform is a powerful tool that enables organizations to easily create, track and measure their strategic sourcing plans. It can be used to create detailed plans with measurable objectives, projects, and KPIs. The platform also provides real-time dashboards and insights that can help organizations quickly identify and address any issues with their plans.

18 of My Favorite Sample Business Plans & Examples For Your Inspiration

Published: July 01, 2024

I believe that reading sample business plans is essential when writing your own.

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As you explore business plan examples from real companies and brands, it’s easier for you to learn how to write a good one.

So what does a good business plan look like? And how do you write one that’s both viable and convincing? I’ll walk you through the ideal business plan format along with some examples to help you get started.

Table of Contents

Business Plan Types

Business plan format, sample business plan: section by section, sample business plan templates, top business plan examples.

Ultimately, the format of your business plan will vary based on your goals for that plan. I’ve added this quick review of different business plan types that achieve differing goals.

For a more detailed exploration of business plan types, you can check out this post .

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1. Startups

Startup business plans are for proposing new business ideas. If you’re planning to start a small business, preparing a business plan is crucial. The plan should include all the major factors of your business.

You can check out this guide for more detailed business plan inspiration .

2. Feasibility Studies

Feasibility business plans focus on that business's product or service. Feasibility plans are sometimes added to startup business plans. They can also be a new business plan for an already thriving organization.

3. Internal Use

You can use internal business plans to share goals, strategies, or performance updates with stakeholders. In my opinion, internal business plans are useful for alignment and building support for ambitious goals.

4. Strategic Initiatives

A strategic business plan is another business plan that's often shared internally. This plan covers long-term business objectives that might not have been included in the startup business plan.

5. Business Acquisition or Repositioning

When a business is moving forward with an acquisition or repositioning, it may need extra structure and support. These types of business plans expand on a company's acquisition or repositioning strategy.

Growth sometimes just happens as a business continues operations. But more often, a business needs to create a structure with specific targets to meet set goals for expansion. This business plan type can help a business focus on short-term growth goals and align resources with those goals.

I’m going to focus on a startup business plan that needs to be detailed and research-backed as well as compelling enough to convince investors to offer funding. In my experience, the most comprehensive and convincing business plans contain the following sections.

Executive Summary

This all-important introduction to your business plan sets the tone and includes the company description as well as what you will be exchanging for money — whether that’s product lines, services, or product-service hybrids.

Market Opportunity

Information about gaps in your industry’s market and how you plan to fill them, focused on demand and potential for growth.

Competitive Landscape Analysis

An overview of your competitors that includes consideration of their strengths and how you’ll manage them, their weaknesses and how you’ll capitalize on them, and how you can differentiate your offerings in the industry.

Target Audience

Descriptions of your ideal customers, their various problems that you can solve, and your customer acquisition strategy.

Marketing Strategy

This section details how you will market your brand to achieve specific goals, the channels and tactics you’ll utilize to reach those goals, and the metrics you’ll be using to measure your progress.

Key Features and Benefits

This is where you’ll use plain language to emphasize the value of your product/service, how it solves the problems of your target audiences, and how you’ll scale up over time.

Pricing and Revenue

This section describes your pricing strategy and plans for building revenue streams that fit your audiences while achieving your business goals.

This is the final section, communicating with investors that your business idea is worth investing in via profit/loss statements, cash flow statements, and balance sheets to prove viability.

Okay, so now that we have a format established, I’ll give you more specific details about each section along with examples. Truthfully, I wish I’d had this resource to help me flesh out those first business plans long ago.

1. Executive Summary

I’d say the executive summary is the most important section of the entire business plan. It is essentially an overview of and introduction to your entire project.

Write this in such a way that it grabs your readers' attention and guides them through the rest of the business plan. This is important because a business plan can be dozens or hundreds of pages long.

There are two main elements I’d recommend including in your executive summary: your company description and your products and services.

Company Description

This is the perfect space to highlight your company’s mission statement and goals, a brief overview of your history and leadership, and your top accomplishments as a business.

Tell potential investors who you are and why what you do matters. Naturally, they’re going to want to know who they’re getting into business with up front. This is a great opportunity to showcase your impact.

Need some extra help firming up your business goals? I’d recommend HubSpot Academy’s free course to help you set meaningful goals that matter most for your business.

Products and Services

Here, you will incorporate an overview of your offerings. This doesn’t have to be extensive, as it is just a chance to introduce your industry and overall purpose as a business. I recommend including snippets of information about your financial projections and competitive advantage here as well.

Keep in mind that you'll cover many of these topics in more detail later on in the business plan. The executive summary should be clear and brief, only including the most important takeaways.

Executive Summary Business Plan Examples

This example was created with HubSpot’s business plan template . What makes this executive summary good is that it tells potential investors a short story while still covering all of the most important details.

Our Mission

Maria’s Gluten Free Bagels offers gluten-free bagels, along with various toppings, other gluten-free breakfast sandwich items, and coffee. The facility is entirely gluten free. Our team expects to catch the interest of gluten-free, celiac, or health-conscious community members who are seeking an enjoyable cafe to socialize. Due to a lack of gluten-free bagel products in the food industry currently, we expect mild competition and are confident we will be able to build a strong market position.

The Company and Management

Maria’s Gluten Free Bagels was founded in 2010 by Maria Jones, who first began selling her gluten-free bagels online from her home, using social media to spread the word. In 2012 she bought a retail location in Hamilton, MA, which now employs four full-time employees and six part-time employees. Prior to her bagel shop, Maria was a chef in New York and has extensive experience in the food industry.

Along with Maria Jones, Gluten Free Bagel Shop has a board of advisors. The advisors are:

• Jeni King, partner at Winding Communications, Ltd.
• Henry Wilson, president of Blue Robin, LLP.

Our Product

We offer gluten-free products ranging from bagels and cream cheese to blueberry muffins, coffee, and pastries. Our customers are health-conscious, community-oriented people who enjoy gluten-free products. We will create a welcoming, warm environment with opportunities for open mic nights, poetry readings, and other community functions. We will focus on creating an environment in which someone feels comfortable meeting a friend for lunch, or working remotely.

Our Competitive Advantages

While there are other coffee shops and cafes in the North Shore region, there are none that offer purely gluten-free options. This restricts those suffering from gluten-free illnesses or simply those with a gluten-free preference. This will be our primary selling point. Additionally, our market research [see Section 3] has shown a demand for a community-oriented coffee and bagel shop in the town of Hamilton, MA.

Financial Considerations

Our sales projections for the first year are $400,000. We project a 15% growth rate over the next two years. By year three, we project 61% gross margins.

We will have four full-time employees. The salary for each employee will be $50,000.

Start-up Financing Requirements

We are seeking to raise $125,000 in startup to finance year one. The owner has invested $50,000 to meet working capital requirements, and will use a loan of $100,000 to supplement the rest.

Example 2 :

Marianne and Keith Bean have been involved with the food industry for several years. They opened their first restaurant in Antlers, Oklahoma in 1981, and their second in Hugo in 1988. Although praised for the quality of many of the items on their menu, they have attained a special notoriety for their desserts. After years of requests for their flavored whipped cream toppings, they have decided to pursue marketing these products separately from the restaurants.

Marianne and Keith Bean have developed several recipes for flavored whipped cream topping. They include chocolate, raspberry, cinnamon almond, and strawberry. These flavored dessert toppings have been used in the setting of their two restaurants over the past 18 years, and have been produced in large quantities. The estimated shelf life of the product is 21 days at refrigeration temperatures and up to six months when frozen. The Beans intend to market this product in its frozen state in 8 and 12-ounce plastic tubs. They also intend to have the products available in six ounce pressurized cans. Special attention has been given to developing an attractive label that will stress the gourmet/specialty nature of the products.

Distribution of Fancy's Foods Whipped Dream product will begin in the local southeastern Oklahoma area. The Beans have an established name and reputation in this area, and product introduction should encounter little resistance.

Financial analyses show that the company will have both a positive cash flow and profit in the first year. The expected return on equity in the first year is 10.88%

Tips for Writing Your Executive Summary

• Start with a strong introduction of your company that showcases your mission and impact, then outline the products and services you provide.
• Clearly define a problem, explain how your product solves that problem, and show why the market needs your business.
• Be sure to highlight your value proposition, market opportunity, and growth potential.
• Keep it concise and support ideas with data.
• Customize your summary to your audience. For example, you might emphasize finances and return on investment for venture capitalists, whereas you might emphasize community benefits and minimal environmental impact for progressive nonprofits.

For more guidance, check out our tips for writing an effective executive summary .

2. Market Opportunity

This is where you'll detail the opportunity in the market. Ask and answer: Where is the gap in the current industry, and how will my product fill that gap?

To get a thorough understanding of the market opportunity, you'll want to conduct a TAM, SAM, SOM analysis , a SWOT analysis , and perform market research on your industry to get some insights for this section. More specifically, here’s what I’d include.

• The size of the market
• Current or potential market share
• Trends in the industry and consumer behavior
• Where the gap is
• What caused the gap
• How you intend to fill it

Market Opportunity Business Plan Example

I like this example because it uses critical data to underline the size of the potential market and what part of that market this service hopes to capture.

Example: The market for Doggie Pause is all of the dog owners in the metropolitan area and surrounding areas of the city. We believe that this is going to be 2/3 of the population, and we have a goal of gaining a 50% market share. We have a target of a 20% yearly profit increase as the business continues.

Tips for Writing Your Market Opportunity Section

• Focus on demand and potential for growth.
• Use market research, surveys, and industry trend data to support your market forecast and projections.
• Add a review of regulation shifts, tech advances, and consumer behavior changes.
• Refer to reliable sources.
• Showcase how your business can make the most of this opportunity.

3. Competitive Landscape Analysis

Since we’re already speaking of market share, you‘ll also need to create a section that shares details on who the top competitors are. After all, your customers likely have more than one brand to choose from, and you’ll want to understand exactly why they might choose one over another.

My favorite part of performing a competitive analysis is that it can help you uncover the following:

• Industry trends that other brands may not be utilizing.
• Strengths in your competition that may be obstacles to handle.
• Weaknesses in your competition that may help you develop selling points.
• The unique proposition you bring to the market that may resonate with customers.

Competitive Landscape Business Plan Example

I like how the competitive landscape section of this business plan shows a clear outline of who the top competitors are. It also highlights specific industry knowledge and the importance of location. This demonstrates useful experience in the industry, helping to build trust in your ability to execute your business plan.

Competitive Environment

Currently, there are four primary competitors in the Greater Omaha Area: Pinot’s Palette Lakeside (franchise partner), Village Canvas and Cabernet, The Corky Canvas, and Twisted Vine Collective. The first three competitors are in Omaha and the fourth is located in Papillion.

Despite the competition, all locations have both public and private events. Each location has a few sold-out painting events each month. The Omaha locations are in new, popular retail locations, while the existing Papillion location is in a downtown business district.

There is an opportunity to take advantage of the environment and open a studio in a well-traveled or growing area. Pinot’s Palette La Vista will differentiate itself from its competitors by offering a premium experience in a high-growth, influential location.

Tips for Writing Your Competitive Landscape

• Complete in-depth research, then emphasize your most important findings.
• Compare your unique selling proposition (USP) to your direct and indirect competitors.
• Show a clear and realistic plan for product and brand differentiation.
• Look for specific advantages and barriers in the competitive landscape. Then, highlight how that information could impact your business.
• Outline growth opportunities from a competitive perspective.
• Add customer feedback and insights to support your competitive analysis.

4. Target Audience

Use this section to describe who your customer segments are in detail. What is the demographic and psychographic information of your audience? I’d recommend building a buyer persona to get in the mindset of your ideal customers and be clear about why you're targeting them. Here are some questions I’d ask myself:

• What demographics will most likely need/buy your product or service?
• What are the psychographics of this audience? (Desires, triggering events, etc.)
• Why are your offerings valuable to them?

Target Audience Business Plan Example

I like the example below because it uses in-depth research to draw conclusions about audience priorities. It also analyzes how to create the right content for this audience.

The Audience

Recognize that audiences are often already aware of important issues. Outreach materials should:

• Emphasize a pollution-prevention practice
• Tell audience a little about how to prevent pollution
• Tell audience where they can obtain information about prevention.

Message Content

• Focus the content for outreach materials on cost savings, such as when and where pollution prevention is as cheap as or cheaper than traditional techniques. Include facts and figures.
• Emphasize how easy it is to do the right thing and the impacts of not engaging in pollution prevention.
• Stress benefits such as efficiency or better relations with government, for businesses not primarily concerned with public image.

Tips for Writing Your Target Audience Section

• Include details on the size and growth potential of your target audience.
• Figure out and refine the pain points for your target audience , then show why your product is a useful solution.
• Describe your targeted customer acquisition strategy in detail.
• Share anticipated challenges your business may face in acquiring customers and how you plan to address them.
• Add case studies, testimonials, and other data to support your target audience ideas.
• Remember to consider niche audiences and segments of your target audience in your business plan.

5. Marketing Strategy

Here, you‘ll discuss how you’ll acquire new customers with your marketing strategy. I think it’s helpful to have a marketing plan built out in advance to make this part of your business plan easier. I’d suggest including these details:

• Your brand positioning vision and how you'll cultivate it.
• The goal targets you aim to achieve.
• The metrics you'll use to measure success.
• The channels and distribution tactics you'll use.

Marketing Strategy Business Plan Example

This business plan example includes the marketing strategy for the town of Gawler. In my opinion, it works because it offers a comprehensive picture of how they plan to use digital marketing to promote the community.

You’ll also learn the financial benefits investors can reap from putting money into your venture rather than trying to sell them on how great your product or service is.

This business plan guide focuses less on the individual parts of a business plan, and more on the overarching goal of writing one. For that reason, it’s one of my favorites to supplement any template you choose to use. Harvard Business Review’s guide is instrumental for both new and seasoned business owners.

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What is Strategic Sourcing and Why is it Important?

With globalization becoming the buzzword in today's business landscape, the role and importance of effectively sourcing goods and services from suppliers have increased dramatically.

In addition, an increasing number of business and procurement leaders are shifting their focus on reducing costs while enhancing business productivity and delivering outcomes simultaneously.

This is where strategic sourcing comes in.

An evolving business practice, the strategic sourcing approach is completely transforming the way businesses and procurement leaders manage their buyer-supplier relationships.

The approach works primarily by considering the total cost of ownership in terms of the industry trends and ensures to optimize the sourcing procedure by building strategic, long-term, and mutually beneficial relationships with vendors.

Let's explore the process of strategic sourcing in more detail, including what it is, how it works, its advantages, steps involved in the process, examples of strategic sourcing, and more.

What is Strategic Sourcing?

Strategic sourcing is essentially a holistic supply chain management process that aims to help organizations obtain the maximum value from their purchasing decisions .

The goal of strategic sourcing is to secure the best possible total cost, rather than just the lowest purchase price for the goods in question. This is achieved by gathering and organizing all useful data in a way that aligns with the respective business goals and purchasing strategy.

Put simply, strategic sourcing refers to a process designed to purchase the best possible products and services for optimal value.

The highlight of the process is that it is not a one-time effort but a systemic approach that continuously re-evaluates the organization's purchasing activities, including the activities related to the acquisition or direct buying of goods, services, or commodities.

Further, it is a long-term process that is dependent on various factors such as analysis of the market, continuous re-evaluation of the business’s sourcing activities, and aligning the goals and requirements of the business with those of the suppliers.

How Does Strategic Sourcing Work?

An increasing number of businesses today use strategic sourcing to ensure that their procurement processes are more focused on value and price.

Having a detailed and well-thought-of sourcing plan can allow businesses to build a powerful system that contributes to the overall success of the company in the long term. 

Strategic sourcing begins with analyzing the business's unique needs and past spending patterns, brainstorming and outlining a detailed sourcing plan, followed by conducting data collection and market analysis to ensure the guided selection of a roster of professional suppliers.

Once the selection of suppliers and negotiations over the contract is complete, the process also outlines the continuous measuring of vendors/suppliers' performance and improvement of the process. Typically, strategic sourcing is practiced by big organizations with many suppliers who wish to delegate the function to a professional or a specialist.

To this end, the key principles of strategic sourcing are as follows:

• Making sourcing decisions based on the big-picture value 
• Considering the total cost of ownership rather than short them costing
• Preferring long-term partnerships over one-time transactional interactions
• Prioritizing the key elements of a vendor’s offer
• Highlighting the actual value of the procurement department.

Main Elements of Strategic Sourcing

Among the key elements of strategic sourcing are:

a. Well-organized : As an ongoing process, strategic sourcing covers various spend categories of goods and services and invites different suppliers to participate in the process.

b. Highly collaborative : Strategic sourcing thrives on collaboration. This is a process where teams are cross-functional, and therefore suppliers get to work and interact with the right set of people who look beyond the price. Besides, the sourcing teams also get the opportunity to connect with department managers, company stakeholders, and suppliers to find better solutions.

c. Systemic : Another important element of strategic sourcing is analytics and its data-driven nature, which makes the process function well with a systemic approach. This continuous improvement process also undergoes regular reviews to incorporate various new tools, strategies, best practices, benchmarking, etc.

The Advantages of Strategic Sourcing

There are several advantages of implementing the strategic sourcing process in your business. Some of these are discussed below:

A. Help Reduce Risks

Strategic sourcing is not just about finding a good supplier but equally about preventing an ineffective collaboration.

The in-depth and detailed process is designed and implemented to allow businesses to look into various aspects of sourcing, assess suppliers' capabilities and experience, and develop a proper plan to build communication.

Post this, they can conduct risk analysis at various levels, including for quality, financial, and supply risks. This helps businesses to come up with a comprehensive strategy to mitigate or minimize risk.

B. Reduce Both Direct and Indirect Costs

Data suggests that cost-cutting is one of the top priorities for more than 80% of procurement managers. A well-defined and properly executed sourcing strategy addresses this concern and helps save costs in several ways.

Right from the start where the procurement team identifies the existing costs overdue for optimization to the stage where they collect data and deeper insights, carry out research, understand shareholders' needs, and then produce a comprehensive request for proposal (RFP) to find and choose the suitable supplier, the process helps save cost at every step.

C. Scope for Continuous Improvement

Another benefit of strategic sourcing is that it is not a one-time event but offers room for continuous assessment, review, and improvement of the processes.

The process involves a targeted approach that enables managers to identify growth areas and make them work to their advantage.

Besides, it also allows various shareholders to make strategic decisions for aspects such as the growth of the business model and capitalizing on market prospects to help them stay competitive.

D. Enhanced Innovation

Since the focus of strategic sourcing is on vendor partnership, it allows organizations to provide them with quick and regular feedback.

Similarly, vendors and suppliers also enjoy a platform to keep up with market trends, remain competitive in this ever-evolving space, and collaborate on several innovative initiatives.

Apart from the above-mentioned benefits of strategic sourcing, Gartner data also suggests that the top reason businesses choose a strategic sourcing plan is to transform the overall sourcing process within the organization.

Businesses that employed strategic sourcing also reported enhanced productivity through automation and higher savings/cost-cutting as some of the key drivers for pursuing this approach.

7-Step Detailed Process of Strategic Sourcing

The many advantages of strategic sourcing encourage more and more businesses to carry out a sourcing strategy as quickly as possible. Here is a 7-step plan that businesses can follow to implement strategic sourcing:

1. Thoroughly Understand Internal Requirements

The first and foremost step of strategic sourcing is to identify key spend areas across the business, followed by sorting them into different categories based on factors such as critical/non-critical, direct/indirect spending, and more.

You begin with detailed profiling of the product category, including the departments involved and the spending patterns. This allows you to implement risk analysis and prioritize the sourcing processes to develop a detailed sourcing strategy.

2. Performing Thorough Research About the Supplier Market

The next step involves analyzing the market and identifying potential new suppliers, both local and global.

Here, you need to check out both existing and future vendors and record their profiles to better understand their past market standing, industrial performance, revenue share, risks involved, etc. 

3. Gathering All Potential Vendor Details

At this stage, businesses will require complete vendor insights to be able to support the data gathered.

These can be collected by requesting vendors for RFPs/RFQs/RFIs after accurately defining their business needs so that vendors can provide accurate and relevant insights. 

4. Developing a Robust Sourcing Strategy

Once the vendor details are available, businesses can decide on the type of strategic sourcing process that will work best for them.

This should be done keeping in mind all the objectives and goals of the organization and the sourcing strategy that has a track record of being successful within their respective industry.

Developing this kind of strategic sourcing strategy will give a complete picture of the specifications of the services/goods and expected delivery time, along with a breakdown of the expenses involved between the business and the vendor.

5. Selecting the Sourcing Process

This stage involves the selection of the sourcing process, and the most common way here to strategically source supplies is through a Request for Proposal (RFP).

RFP is essentially a document prepared by procurement teams interested in sourcing goods from vendors for a project. The document may include a range of things, including details of product/service specifications, pricing breakdowns, and legal/financial terms and conditions.

In some cases, RFPs are preceded by a Request for Information (RFI), a document businesses use to narrow down their choice of potential suppliers to just a few suitable options.

6. Negotiation with Suppliers

This stage should have the number of potential suppliers narrowed down to the ones who can best fit the needs and requirements of your organization.

Further, businesses should interview suppliers and vendors for more information to assess their stability before making the final choice.

7. Implementation of the Sourcing Strategy

Once the supplier selection is done, the business needs to build communication with its sources to better negotiate the terms of a supply contract.

It is important to remember that more complex products need additional communication, meaning that vendors/suppliers should be integrated into business meetings and discussions regularly so that they can best fulfill the organization's unique needs.

The business needs to ensure that suppliers are kept fully updated on changes and understand the overall scope of the contract well.

8. Tracking and Reporting the Results 

Measuring the performance of different departments over time is another crucial step in strategic sourcing. Every stakeholder, including the suppliers, sales teams, and production departments, should be analyzed thoroughly and improved upon if possible.

Identifying and fixing such minor issues allows you to achieve your goals more readily, thus enhancing the chances of product success.

Examples of Strategic Sourcing

Businesses today use a range of sourcing strategies to procure goods during the entire sourcing process.

To ensure the success of strategic sourcing within an organization, the organization needs to maintain clear visibility over their spending for vendors, supplies, and relationships with suppliers and allocate organization needs.

Here are some examples of strategic sourcing that you can find in the business world regularly:

• Finding a vendor or supplier who can meet deadlines without any kind of delays or issues
• Consolidating all purchases to one single vendor to avoid heavy delivery fees or being charged varied prices for goods 
• Finding a supplier or vendor who can deliver multiple products/deliveries at the same time
• Building strong and transparent business relationships with vendors so that they can assist you in times of need or during an emergency, such as by making an urgent and timely last-minute delivery
• Making thorough considerations for various organizational objectives, specific client needs, and the key goal of delivering quality items to clients
• Making various internal departments aware of aspects such as spending habits and purchasing rules of other departments in the organization.

A well-defined strategic sourcing plan allows businesses to achieve different organizational goals that contribute to overall success.

Some examples of these include:

• Competitive differentiation

The process gives you a competitive edge by using suppliers with credibility in the market and emphasizing them through targeted marketing efforts.

• Meeting compliance

Strategic sourcing ensures that your business meets all compliance and regulatory guidelines by picking certified components.

• Managing environmental conditions 

The process ensures that the business manages environmental conditions and logistics by sourcing goods or services from easily available locations.

• Minimizing risk

Strategic sourcing minimizes risk by engaging secondary and alternative vendors or suppliers and closely monitoring any sort of changes in factors such as quality, shipping, product availability, taxes, and regulations.

Understanding the Difference Between Strategic Sourcing and Procurement

Although strategic sourcing and procurement are related to an organization's supply chain, they are not the same and must be implemented differently to ensure success.

The key differences between the two are listed below:

	Strategic Sourcing	Procurement
Purpose	Value creation Strategic sourcing aims to achieve cost reductions through quality improvements. Enterprises leverage the process to get additional value from their vendors and suppliers. They have the choice to pick vendors that offer both technologies and materials that enable them to either improve their products or develop new products. This not only gives the company a distinct competitive advantage but also adds value to the relationship.	Servicing internal customers and supporting other functions The aim of procurement managers is primarily to ensure that vendors or suppliers meet required quality standards.
Objective	TCO (Total cost of ownership) and best possible value	Lowest possible cost
Approach	Preventive Strategic sourcing primarily emphasizes the various activities leading up to the actual purchase of goods or services, including analysis of business needs and the marketplace at large.	Reactive The focus of procurement is largely on controlling costs and enhancing the company's profitability.
Collaboration	Strategic sourcing works in a way that helps in building collaborative relationships between customers and suppliers. During the process, customers offer their suppliers/vendors information on both future production plans and supply requirements, enabling them to thoroughly plan and work on their own production levels.	Procurement, on the contrary, works in a way where customers would have to either cancel their orders or find new vendors/suppliers with additional capacity to be able to adjust and meet changes in market demands.
Cost	In strategic sourcing, managers begin the task by assessing the total cost of doing business with a supplier. Apart from the price, they also consider other factors such as the costs of delivery, quality control, purchasing administration, and inventory with the aim of reducing the overall cost of obtaining supplies.	In procurement, managers look at price as one of the key factors.

The Bottom Line

In a nutshell, strategic sourcing is the process of gathering data, collaborating with the best vendors, and ensuring the value and efficiency of an ongoing procurement.

In most cases, it goes beyond the basic, transactional purchases and shifts the focus on the bigger objective of how to help achieve the larger goals of the organization. 

Likewise, vendor partnerships as a result of strategic sourcing help organizations navigate several challenges as they arise while improving outcomes and mitigating rising costs at the same time. 

Although the details and specifics of strategic sourcing vary from one organization to the next, the basics, goals, and foundation of the process remain the same. Begin your strategic sourcing efforts with your project today to get the best out of the process.

• How is Sourcing Different From Procurement in the Supply Chain?
• Sourcing To Pay Vs Procure To Pay - What’s The Difference

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9 Steps To Create A Successful Sourcing Strategy

If you are effective and efficient in what you normally do, you naturally stick to it. To cope with the rapid changes in the business world you need to look a bit further ahead. There are situations and challenges when the norm is not sufficient – instead of finding out the hard way the wise prepare. This article is meant to give you a blueprint on how you can create a sourcing strategy when you anticipate a difficult challenge or know that for some reason you can not stick to your normal activities.

1. What is a sourcing strategy?

Let’s start answering the question what is a sourcing strategy with understanding what is, generally speaking, strategy? A question so simple, but one which has so many answers to. The evolution of management theory generated many definitions, like this from the person who probably holds the Guinness record for appearing in most university subjects, Michael Porter:

“[Strategy is the] broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals”

A widely used definition by Oxford Dictionary states:

“A plan of action designed to achieve a long-term or overall aim.”

The key things to understand are that strategies

• Describe your end-goal
• Focus on how you are going to gain competitive advantage  (watch this 1,5 minute video of Porter explaining why this is crucial)
• Are long-term
• Break down what is needed to reach the goal

2. Now that we know what a that strategy is, the question is what is sourcing?

The point of this article is certainly not to write an in-depth analysis of what should be considered sourcing and what is not sourcing (read about that here from Glen, here from Balázs, and here again from Glen). But since there are contradictory sourcing definitions, let me define it with a sentence how I typically introduce it to a layman.

Sourcing is the opening act of the recruitment process, where the candidate and the representative of the company find each other and decide whether there is mutual interest in moving forward.

Notice that:

• sourcing is not just searching.
• sourcing is not just dealing with passive candidates.
• sourcing can be done by a sourcer, recruiter, HR representative or even a hiring manager depending on the process at the given company.

It is no coincidence that we use terms like passive sourcing, active sourcing, direct sourcing, phone sourcing or internet sourcing: there are many ways how you can find the candidates or you can encourage the candidates to find you.

3. So, then the sourcing strategy is…

A long-term plan of how you will establish and uphold the continuous flow of the targeted talent to your company’s recruitment process and how will you edge out the competition looking for the same talent.

That means:

• You do not have a sourcing strategy for each and every position
• But you should have multiple sourcing strategies for the different type of talent you seek (think about dividers such as seniority, industry, white-collar/blue-collar, geography)
• Your company does not need a sourcing strategy for a type of talent where everything works already great and you anticipate no major changes
• It’s a long-term plan, meaning you do not take the status quo granted, but think about trends and changes in the industry
• You focus on best practice and push the boundaries for “even better practice”
• Strategy is not a collection of tools you will use. That’s just one of the end products of your strategy.

4. Why create a sourcing strategy?

Creating a sourcing strategy is a good way to prepare to source a new type of talent or for a new challenge with the known talent. The challenge may come from the quantity of candidates (you need much more than so far), timing (you need them faster, at a special time, or continuously for a long period) or a change in the behaviour/structure of the talent pool.

Unfortunately many lose the above goal and try to create a sourcing strategy to simply impress a client, a stakeholder or a manager. While a good strategy certainly has the ability to help you with this, if impressing is your primary goal, instead of bringing value to the process you just waste time on summarizing your current actions. Beware: this limits your thinking so may be even more dangerous than doing nothing. Only create a strategy if there is real need for one!

The desire to impress #recruitment managers or clients is not enough to start creating a #sourcing strategy Click To Tweet

On the other hand, when you have finished the strategy, be sure to share it with the appropriate audience – a little visibility in the eyes of your management, hiring community or client never hurt anyone.

5. While we are this: So what’s a recruitment strategy? And why to create a sourcing strategy, not a recruitment strategy?

Just as sourcing is part of the recruitment process, the sourcing strategy is part of the recruitment strategy. Besides further steps like interviewing, assessment, on-boarding, a recruitment strategy should involve much more work organisation/resource allocation questions. For practical reasons (time, effort, value-add) and because of sourcing being perhaps the most crucial part of the recruitment process it may make more sense to narrow your focus to a sourcing strategy. Also, do not forget that typically the stakeholders and the decision makers on the proposed steps differ (in other words you need higher involvement for a recruitment strategy).

Guide to create your sourcing strategy

Now that we discussed exactly what a sourcing strategy is, it’s time to learn how to create one.

Classically strategies are written documents with 20-50-100-200-2173612876391268793 pages. I believe we already passed the era (were we ever there?) when people read so long documents, so if you do not want your reader to only read the introduction and the end conclusions, you may want to pick a different format. Except if you want to impress someone with the sheer amount of printed papers you throw at their desk – after my explanations above hopefully that is not your goal.

Better visualisation of your analysis will help you come up with better conclusions. Using a slide format is much more visual, and chunks the information into more digestible and understandable pieces. Plus in most cases you work together in a team, you have a manager, a hiring manager or if you are on the agency side various client representatives. You will most likely show the strategy to them in a presentation, so it’s a smart move to already prepare the strategy in slides.

Now that you know all this it is time to prepare a process redefining, stakeholder charming and world saving piece of strategy. Generally speaking strategies consist of a short introduction to the situation, an analysis of the factors, conclusions drawn from the diagnosis and – if they are not fake materials existing just on paper – end with an action plan. The below 9-step guide shows how this looks in the case of a sourcing strategy ( click here  to open a bigger version).

2.0. Inputs

The sourcing strategy derives from the business plans (coming from company strategy) and HR strategy. The first part of this statement is obvious: you will need to hire people to divisions/markets where growth or big fluctuation is expected. If you diagnose there will only be a spike in required workforce, not a constant need, then hiring may be a bad decision in the first place. This leads to a very practical thumb rule: if the business can not predict the employment needs with at least some degree of certainty, there is not much sense in trying to think in a strategical way.

Alignment with HR strategy is equally important. Are you a company with relatively low average salary level hiring and developing young talent or are you the company with high average salary who routinely picks off these companies? On a related note, what is your training and development strategy? Do you invest in your employees growth? Internally or externally? How does your career management system work? Is there one in the first place? Is the primary function of your performance evaluation system to measure & reward, or to identify & develop?

All these questions will impact who are the right candidates for you.

2.1. Summarize the need

Your strategy starts with summarizing the employment need based on the inputs above. This is a very brief introduction of the situation and the timeframe.

2.2. Pinpoint the challenge

Essentially you have to explain why you have created a sourcing strategy. In the chapter “Why to create a sourcing strategy” I have mentioned that the primary needs for a strategy are new type of talent or a new challenge with the known talent. Sum these up here!

While sharing the strategy with the team or presenting to stakeholders, this is the part which should grab the attention and set the scene.

2.3. Defining the targeted talent

There are many ways how you can do this. Depending on how strictly you target you might go for something really concrete like personas or just a broad description. Any way you do this, be sure to go beyond job descriptions. The actual tasks are not the important part, the skills, qualifications and personality traits are the dimensions which define what ‘talent’ means for you.

2.4. Understanding where is the talent now

By now you explained what you seek –  this is the part where you start looking where you might find this. Threat “where” as a question as broad as possible:

• Which geographical area is of your interest?
• Maybe you should look for candidates from another region, or another country?
• What communities are they part of?
• What companies are they working at?
• Perhaps in an entirely different industry?
• In which schools/educational institutes they are developing themselves?
• What events are they participating in?
• Where are they spending time online? Forums, social media, blogs, websites, job boards?

2.5. Predicting where the talent will be in the future

Suiting profiles change, habits change and generations change. Analyze the economical, industrial and social trends and think about the same questions as in point 4  – but now in 2, 3 or 5 years (depending on the timeframe of your strategy and the speed of change).

Again, think broadly! Find reports, analysis and prediction. Look for comparable situations (how things happened in a different country/industry). Talk with industry experts in and outside of recruitment. Talk with some of the current candidates you have in the process or employees you have already hired.

2.6. What are the competitors doing?

Competition in this context means both the direct competitors of your business and everyone else who is on the hunt or will be on the hunt for the same talent.

• How are they sourcing now?
• What are they doing to prepare for the future?
• How are you different from them?
• What are they not doing and why?
• What are you not doing and why?
• What can you use to position yourself better than them?
• How will the candidates hear more and better things about you?
• Why will they choose you in the end?

2.7. Sourcing Mix now

It’s time to translate your deep analysis to the recruitment industry. By now you have a good understanding where your talent is and what your competitors are doing. So think about:

• Online advertising (job boards, social media, SEO)?
• Direct sourcing (search on job boards, social media, forums or web)?
• Referrals (internal or external)?
• Phone sourcing?
• Headhunting?
• University programs?
• Involving third-party agencies?
• Cooperation with NGO-s and professional organizations?
• Unemployment agency?
• Internal sources?
• Out of these, which are worth to use?
• Which will result in best ROI?
• How are you going to communicate with the candidates?
• What should your message be?
• How you should present your message?

Sourcing Mix is a term I borrowed from Marketing – in the line with the famous 4P (Product, Price, Place, Promotion) as known from the Marketing Mix. A future article is coming on this topic – if you do not want to miss it, subscribe here with just an Email address .

2.8. Sourcing Mix of the future

If your talent pool, or the way how you can reach the candidates in it are prone to change over time, it is natural that your methods should change as well.

Revise your Sourcing Mix keeping in mind what you discovered about your future talent. Add new elements and plan to eliminate old ones. It might be worth to add tools to your mix which are not work the best now, but you expect to rely on them more and more – better be early than late. Being an early adopter means a competitive advantage, but that is not the only way to differentiate yourself. Think out of the box and try not to limit yourself to what you are used to do.

Thinking out of the box can help you out with formulating or changing your message as well, but do not lose your identity while trying to be different and creative. You certainly can and should change your message over time, but stay true to your organization’s identity and general strategy. Not everyone is Google or Coca-Cola, and not everyone should be.

2.9. Checkpoints, measurement

You worked out your sourcing mix for now and for the future so now you just have to execute it, right? Well, not so fast. You certainly used all the data you could gather to predict which methods are the best for you, but there is no guarantee everything will work out the same way in reality as it looks on paper.

The solution is to make sure you will be able to measure and compare the elements of your Sourcing Mix ( I wrote here  on this topic earlier). Depending on your decisions earlier and the talent scope of your sourcing strategy this may range from a source and conversation ratio tracking to complete revisions of your employer brand. Plan what are the most likely causes why you could get off track, and be prepared to intervene in time. A good practice to make sure you act in time is to set up revision checkpoints – for example if source A is not reaching the efficiency level of X/week, or if Y% of candidates have a negative experience  – when you have to intervene.

3. Preparation

Strategical thinking is fun and brings great value to your organisation, but ultimately your goal is not have a good strategy but to hire the most suiting people to run your business. It’s time to put together and implement the operative plan on how you are going to bring your sourcing strategy to life.

Three last tips

Working out a coherent sourcing strategy can be a very challenging task. Before you start, make sure you have the backing of your stakeholders or otherwise it’s very likely that your well-thought out strategy will not bring much yields.

Generally speaking involve everyone who might have a valuable point of view on the subject of your talent or your recruitment process. More eyes see more, and more minds are capable of thinking further.

Share the above with your colleagues and coworkers so you have a common ground on what are you working towards. There is nothing more hindering cooperation than not being aligned on the goals.

It’s not easy to read and process such a robust material. If you have made it so far I am sure you found value in it.

Comment your opinion and experiences below, share the material with your networks, or subscribe to the site here.

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Strategic Sourcing: A Big-Picture Approach to Procurement

May 17, 2024

What is strategic sourcing?

Why is strategic sourcing gaining prominence in procurement.

• Benefits of strategic sourcing
• When is strategic sourcing a good option?

Who is involved in the strategic sourcing process?

How to shift to strategic sourcing, tools for strategic sourcing.

As businesses increasingly focus on managing costs, finding the right vendors has become a top priority for procurement teams. 

Consequently, the practice of strategic sourcing, which focuses on maximizing value and reducing risk through vendor partnerships, is transforming the way businesses view buyer-supplier relationships.

Spending wisely can make or break your business. Admittedly, this idea isn’t new. Indeed, for finance and procurement teams, it’s an age-old, foundational principle. However, what is new is how they decide what wise spending looks like. As businesses increasingly seek to control costs while maximizing output, the procurement department is faced with the question of how to deliver results. For many, the answer is strategic sourcing.

Strategic sourcing is a growing practice that embraces spend analysis, data-driven supplier selection and ongoing engagement with vendor partners. 

This guide will explore strategic sourcing in detail. To start, learn the definition of strategic sourcing as well as key principles and benefits of the practice. Then, explore scenarios that are ideal for strategic sourcing as well as who is involved in the process. Next, you’ll see a detailed plan for implementing strategic sourcing. Finally, the article will share how technology enables strategic sourcing to deliver even more value.

Strategic sourcing is an approach to procurement that weighs the overall value delivered through a vendor relationship rather than the simple cost of the product or service provided by a vendor. The practice is a part of supply chain management and emphasizes customized solutions and strategic partnerships.

Furthermore, this big-picture perspective acknowledges and accounts for the many complex factors that influence value. Indeed, strategic sourcing is often viewed as a cycle that includes spend analysis, supplier selection and ongoing engagement.

In addition, an emphasis on building meaningful buyer-vendor partnerships promotes collaboration, accountability and innovation throughout the vendor lifecycle. Ultimately, this approach achieves the overall goal of strategic sourcing – to reduce costs while improving the efficiency and reliability of the supply chain.

Traditional procurement vs. strategic sourcing

Procurement has always been focused on controlling costs and improving company profitability. However, the way that organizations identify and connect with suppliers and vendors has changed significantly in the last several decades.

Historically, vendor selection has largely been based on locality and peer referrals. As technology emerged, organizations gained access to a vast and competitive global network of suppliers. 

Now, with visibility to a full range of suppliers, procurement teams focus on controlling procurement costs by finding the vendor offering the lowest price as quickly as possible. This tactical, traditional approach is widely practiced. However, a bad experience with the wrong vendor quickly teaches that the fastest, cheapest solution isn’t always the best fit. Consequently, strategic sourcing recognizes and accounts for factors outside of cost. 

Strategic sourcing principles

• Decisions based on big-picture value 
• Partnerships preferred over transactional interactions
• Considers total cost of ownership
• Prioritizes the most important elements of a vendor’s offer
• Highlights the value of the procurement department

Strategic sourcing vendor considerations

Taking a holistic approach that weighs all aspects of the vendor relationship, the strategic sourcing process digs into anything that influences value. The subsequent vendor evaluation process then identifies which of these many considerations are most important.

• Quality of goods and services
• Brand reputation
• Financial stability
• Customizability of solution
• Technology adoption
• Customer satisfaction and support
• Vendor innovation
• Subcontracting and outsourcing
• Reliability and responsiveness
• Scalability and growth opportunities
• Seasonality and stability
• Company culture and values
• Sustainability and diversity

The concept of strategic sourcing isn’t exactly new. In fact, it started sometime in the late 1980s or early 1990s. Initially adopted by large companies to quantify and increase vendor return on investment (ROI), today, the practice is widespread among organizations of all sizes. 

Regardless of size, businesses now have the ability to collect and evaluate extensive data between competitors. Indeed, while much of the value of strategic sourcing is derived from it’s in-depth approach, the multitude of factors also make it difficult to attribute procurement savings directly to a single factor. However, organizations that practice strategic sourcing report a number of benefits.

Benefits of strategic sourcing 

Let’s discuss a few benefits of strategic sourcing and how they’re used today.

Cost savings

Reducing costs is always a top priority for procurement teams. In fact, a recent Deloitte survey reports that reducing costs is a top priority for 76 percent of chief procurement officers (CPOs). Accordingly, cost savings is easily the biggest benefit of strategic sourcing.

The entire process centers around the goal of reducing spend. Starting with the first step of the strategic sourcing cycle, procurement professionals identify current costs overdue for optimization. Then, they gather data, explore stakeholder needs, research the current market and eventually issue a detailed request for proposal (RFP) to evaluate and select the ideal vendor.

Because the selection process is more detailed than a traditional procurement project, both parties are invested in building a mutually beneficial and long-term partnership. As such, the relationship is ongoing and collaborative, ultimately resulting in reduced costs. 

Reduced risk

At its core, strategic sourcing is just as much about avoiding a bad partnership as it is about finding a good vendor. Again, thanks to the detailed process you can consider every factor, dig into the vendor’s experience, explore their contingency plans and set a framework for ongoing communication. The Deloitte CPO survey indicates that 75 percent of CPOs identify improved vendor information sharing as their top risk-management strategy. Luckily, collaboration is a foundational component of strategic sourcing.

Enhanced innovation

With the unique focus on partnership, strategic sourcing gives you the opportunity to provide your vendors with regular feedback. Likewise, they have a platform to proactively alert you to trends, keep you competitive and collaborate on innovative initiatives.

Longer relationship, fewer RFPs

It won’t surprise you to know that neither your procurement department nor the vendor’s proposal team relish the prospect of opening up a new RFP. For complex, high-value sourcing projects, the process could last months or even years. By leveraging strategic sourcing, you can rest assured that you’ve accounted for every important factor, selected the right partner and you’re both ready to meet your goals together. 

When is strategic sourcing a good option? 

While there are undoubtedly benefits to strategic sourcing, it’s not a fit for every procurement project. After all, it is an admittedly complicated, and occasionally time-consuming, process. Some projects just don’t require that level of detail. So, it’s important to always find a balance between the value of the item being procured and the time investment required to undertake a strategic sourcing project.

Strategic sourcing is a good fit for projects that are: 

• High value, well defined and essential to the organization
• Complex and highly specialized
• High stakes and part of an organizational change initiative

Examples of strategic sourcing scenarios: 

• Selection of a new customer relationship management software
• Evaluation of financial services or employee benefits
• Engaging an architecture firm for a new construction project

Scenarios that are better suited to alternative procurement approaches

The detail and time required for strategic sourcing means there are some situations that simply won’t be a good fit for the process. Here are a few examples.

• Low value, low risk procurement like finding a project management solution for a single department
• Collecting bids to meet policy requirements when there is an existing strong preference for a particular vendor
• A routine, transactional purchase of office supplies – try an RFP lite
• Gathering ideas, pricing and planning a potential purchase – consider a request for information (RFI)
• Finding the best expert to consult on a marketing initiative – try a request for qualifications (RFQ)
• Securing the lowest price for a low-complexity purchase — Consider a request for quotation (RFQ)

Within your organization, a number of people and departments will play a role in your strategic sourcing efforts. Typically, the process is owned and managed by the procurement department. Indeed, many organizations have recently created strategic sourcing manager roles to encourage specialization in this area.  

As with most procurement projects, a number of other stakeholders will inevitably participate. For example, for a CRM procurement project, stakeholders from sales, marketing and operations would contribute to the project. In addition, legal, finance and IT are also often involved. Finally, almost every strategic sourcing project will require executive review and approval. 

Adopting strategic sourcing happens one procurement project at a time. Initially, it may feel like a big change, but parts of the process will feel familiar. Indeed, strategic sourcing shares a number of common principles with traditional procurement. As you identify purchases or existing vendor relationships that are a good fit for the approach, you’ll move through the strategic sourcing cycle, starting with spend analysis, then supplier selection and, finally, ongoing engagement.

Spend analysis

Whether you’re evaluating an existing vendor relationship or undertaking a brand new procurement project, you’ll start with research and analysis. The goal of this step is to define your current state, establish needs and goals, and research solutions.

Define your current state

Often, procurement projects start with a need. Either a new problem has emerged or a current process just isn’t working as expected. Regardless of the circumstances, clearly defining your current circumstances sets the foundation for everything that comes next. 

As you engage with stakeholders, ask: What is the existing process or strategy? Who are the stakeholders and decision makers? What gaps or roadblocks exist? Are there internal or external factors influencing the current state? Who will have final approval?

Establish needs and goals

Before you buy, you have to know what you need. Furthermore, you also must understand what you’re trying to achieve. So, gather current contracts, talk to stakeholders and brainstorm a list of solution features as well as goals for the purchase. Try to get the perspective of a range of people involved in the current process at various stages. Once you have your list, it’s time to categorize your considerations.

Making smart purchasing decisions requires a clear understanding of which features and factors are must-haves, which are nice to have and those that are out of scope. Review your list of requirements and label each accordingly to create your scope. Each of your must-have elements should tie directly to the stated goal of the project.

Research solutions

With your clearly defined needs and goals in mind, it’s time to explore potential solutions. The business landscape is constantly changing, so staying abreast of new developments requires some research. Explore online resources, gather supply market analysis reports, check customer reviews and tap into your network for recommendations. Ideally, this step will give you a framework as you determine next steps.

Strategic sourcing considers the return on investment at every step. Consequently, you must now weigh the potential benefits of engaging with a new vendor against the time and cost required to move forward. 

Ask yourself: do the potential vendors offer a cost savings that offsets the investment required to find a new solution? Can you invest time in an existing vendor relationship to avoid undertaking a new strategic sourcing project? Do you have benchmark data to validate future ROI? Which vendors are most likely to meet your immediate needs as well as empower future growth?

Supplier selection

If you decide to move forward to engage with a new vendor, you’ll now focus on finding the right partnership. On the other hand, if your research and analysis indicates that the best course of action is to focus on improving your current vendor relationship, you’ll skip this step and move forward to ongoing engagement. 

Supplier selection is where strategic sourcing significantly diverges from traditional procurement. Indeed, you’ll find that creating a strategic sourcing RFP is more detailed and complex than routine RFPs. Likewise, the proposal evaluation process is more involved.

Writing your RFP

When it comes to strategic sourcing, your standard RFP template offers a good start, but updates are required. Indeed, by definition, a strategic sourcing RFP should be thorough and highly specific when it comes to the background information it provides as well as the questions it asks. Remember, comprehensive RFPs are more likely to yield thoughtful, relevant proposals.

RFP background and information

Strategic sourcing projects are often complex and require a customized solution. So, before you ask a single question, it’s important to provide as much information as possible about your company’s background, needs and goals. This enables potential vendors to fully understand your business and tailor their proposed solution to meet your unique requirements.

Information to include in your strategic sourcing RFP:

• Company information: History, about us, mission, vision, industry position and glossary
• Project information: Background information, problem/need statement, current state summary, project contact and key stakeholders
• Solution scope: Minimum vendor qualifications, project deliverables, vendor evaluation process details and proposed implementation timeline
• Submission information: RFP timeline and milestones including proposal due date, evaluation criteria and proposal submission instructions

RFP questions

After you’ve provided key company background and project information, it’s time to ask the questions that will provide you with crucial decision-making data. 

Standard RFP questions

Your RFP should ask a combination of straightforward questions as well as more in-depth, nuanced questions. Luckily, your RFP template provides a foundation to build upon. For example, your template likely already includes these standard sections: 

• General company information
• Product and service descriptions
• Business philosophy and approach
• Competitive differentiators
• Customer references and case studies
• Cost model and proposed pricing
• Customer success policies 
• Data security information

Strategic sourcing RFP questions

Beyond the standard questions, strategic sourcing RFPs also address more in-depth topics. Naturally, the specific questions you’ll ask in your RFP depend on your project priorities and goals. However, here is a selection of sample strategic sourcing sections and questions to consider.

Customer landscape and competency 

• Does the company already work with your competitors?
• Can you talk directly with a customer that has a similar use case to you?
• Ask what challenges commonly face customers like you and how the vendor participates in collaborative problem solving?
• Is the company publicly or privately owned? If private, who are the current investors?
• Are earnings, assets or profit and loss statements available for review?
• Has the company been involved in a merger, acquisition or reorganization in the last few years?

Supply chain stability and infrastructure

• Who are the vendor’s primary suppliers? Subcontractors? Consultants?
• Can the company’s production accommodate an increase in volume or change in scope?
• How robust is their supply chain and how have they overcome supply chain challenges in the past? 

Communication policies

• What technology do you use to communicate with customers?
• When is customer support available and how can they be contacted?
• What is the average response time to customer questions?

Implementation and time to value

• Describe your standard customer onboarding process.
• How long does onboarding take and what is the current timeframe for implementation if you are selected?
• What resources or preparations are required from your organization to ensure on-time implementation?

Ethics and social responsibility

• Request a copy of the company’s corporate and employee policies.
• What are the company’s sustainability policies?
• Does the organization support social responsibility and charitable giving?

Proposal evaluation

RFPs are a useful data collection tool. However, as a procurement professional, you must be able to use that data to find the best vendor. With hundreds of data points per proposal, simply viewing the information side-by-side won’t make the best choice obvious. Fortunately, team proposal evaluation and weighted scoring offer a way to summarize the results of any procurement project.

Team proposal evaluation

Once you’ve received your RFP responses, it’s time to score your proposals. Start by verifying that each proposal meets your minimum requirements. Then, score any closed-ended questions. Finally, it’s time to engage your stakeholders again to help score the more nuanced responses.

A strategic sourcing proposal covers a lot of detailed and technical topics. So rather than having a single procurement professional score the proposals, split the scoring into several groups. For instance, the legal team should score responses to questions that deal with terms and conditions. Likewise, your IT team is best equipped to score RFP responses about software integrations and capabilities. 

As you engage with individual and team proposal reviewers, provide a scoring guide to ensure everyone is on the same page. Indeed, you’ll find your initial spend analysis documents helpful as you create a scoring rubric.  

Weighted scoring

While strategic sourcing considers a vast number of factors, not each of those factors have the same importance to the business. For example, the vendor’s history of on-time delivery is likely far more important to you than their fax number. To properly account for these different priorities, many strategic sourcing teams leverage weighted scoring.

Weighted scoring assigns each question a point value based on its importance to the business, often a scale from one to five. Then, it weighs the score based on its value to the business. For example, several questions in the capabilities section may each be worth five points while a question about must-have functionality is worth 20 points. Then, the capabilities section as a whole is worth 40 percent of the entire proposal. 

To get the final weighted score, multiply the point total for each section by weight percentage and then add the section scores together to get a total score for each vendor. Admittedly, it sounds complicated. However, when you break it down, a simple weighted scoring calculation may look something like this:

Certainly, it’s the best practice to ensure as much objectivity as possible by assigning an individual score for each question. However, some businesses prefer to score and weight each section collectively to save time. As with most procurement practices, your approach will vary based on the needs of the project. 

Final vendor selection

Once you’ve scored your proposals, made your comparisons and called customer references, hopefully you have a clear winner. If not, consider narrowing your vendors to a short list and requesting live RFP presentations or issuing a supplementary RFP.

When you identify the best vendor fit, begin negotiations and contracting. During this step, it’s important to define and put in writing your expectations, strategy for meeting goals and metrics for evaluating performance. Indeed, make sure your team and the vendor are on the same page when it comes to timelines, deliverables and quality control. Proactively establishing this framework will make the next step in the strategic sourcing cycle significantly easier.

Ongoing evaluation

When it comes to maximizing the value of your vendor relationships, continual communication is key. Far too often in traditional procurement approaches, the relationship falls into maintenance mode after the contract is signed. Your vendor goes quiet and the partnership has a ‘no news is good news’ approach.

Unfortunately, this greatly limits the value that the vendor partnership can provide your organization. Luckily, strategic sourcing leverages ongoing evaluation through regular performance reviews, continual communication and market research.

Regular performance reviews

Using the metrics established during negotiations and contracting, establish regular check-ins with your vendor contact. Generally, setting quarterly reviews provides enough oversight to proactively address problems while delivering sufficient feedback for continual improvement. Before these reviews, gather feedback from the individual departments and users that regularly interact with the vendor, so you get a complete picture of how the engagement is going.

Ask what is working well in the partnership? Is the vendor delivering the products and services as expected? How can the process become more efficient? Where is there room for improvement?

Vendor evaluation factors

• Quality control metrics for products and services
• Consistent and timely delivery
• Customer support and responsiveness
• Quantity and cost invoice accuracy
• Expected and actual return on investment

If you encounter challenges outside of the regular review period, reach out to your vendor. Don’t just assume that the vendor is aware of and apathetic to the problem. An article from business.org summarizes saying: 

“Even the most reliable supplier can occasionally slip up. Make sure they have a direct contact point at your company and conduct regular performance reviews. This will help you keep tabs on their work and make sure they’re fulfilling their end of the agreement. These reviews will also help you when it comes time to talk about contract renewal, so you know where you stand.”

Continual communication 

Your partnership should be a two-way street that provides feedback to your vendor and encourages them to do the same. Ideally, transparent communication enables your vendors to become a trusted part of your network.

Ongoing collaboration between your company and your vendors encourages efficiency, identifies roadblocks and fuels creativity. Unfortunately, vendor communication doesn’t always happen spontaneously, it must be planned for and encouraged.

An article from Entrepreneur puts it like this:

“Not every customer wants to buddy up to suppliers, so the fact that your suppliers aren’t offering to work closely with you to improve quality, reduce defects and cut costs doesn’t necessarily mean they don’t want to. They may be under the impression that you are the reluctant one. So, if you want a tighter working relationship with suppliers, let them know.”

Each vendor in your supply chain has a unique perspective and valuable set of experiences. Indeed, staying in sync with your providers will help you identify trends, anticipate market changes and collaborate to find creative ways to improve efficiency.

Market research

It’s no secret that the business landscape is continually changing and evolving. Accordingly, you must watch for potential shifts in customer demand that may impact your needs. Even when you have a positive relationship with a current vendor, it’s important to stay up to date with what their competitors can offer. 

Fortunately, creating and maintaining vendor profiles enables you to catalog key information and updates from potential suppliers. Staying abreast of the latest developments enables you to have a backup plan if your vendor fails to meet your needs. In addition, because these profiles contain background information and differentiators, they can help speed up shortlist selection in the event that a new RFP must be issued.

For organizations prioritizing procurement savings, strategic sourcing software is a must. Designed to centralize and automate strategic sourcing, these platforms are typically cloud-based and collaborative, enhancing efficiency and effectiveness in strategic sourcing.

Strategic sourcing software may include features like: 

• Project management
• Savings tracking 
• Digital RFP issuing and evaluation
• RFP template library
• Data collection and analysis
• Internal and external collaboration
• Vendor relationship management
• Category management
• Supplier marketplace

Make strategic sourcing work for you

Ultimately, strategic sourcing is the process of collecting data, partnering with the best vendors and ensuring ongoing procurement value and efficiency. It goes beyond basic, transactional purchases and focuses on the big picture – how to help achieve the goals of the organization. Likewise, the vendor partnerships that result from strategic sourcing help navigate challenges as they arise while improving outcomes and reducing costs. 

Naturally, the specifics of strategic sourcing will change from one organization to the next. However, the foundation and goals of the process remain the same. Luckily, you can start your strategic sourcing efforts one project at a time.

Dave Hulsen is the Co-Founder and the Chief Operating Officer of RFP360 . He has a background in technology consulting and has issued and responded to hundreds of RFPs, RFQs, RFIs and other information requests.

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Top 10 Examples of Strategic Sourcing

10. BMW Group

BMW has a well-established strategic sourcing program that focuses on developing long-term relationships with suppliers, improving supply chain efficiency and reducing costs.

BMW's strategic sourcing is known for its focus on building strong relationships with its suppliers, as well as its commitment to sustainability and innovation.

The company uses advanced analytics to identify opportunities for cost savings and has implemented a just-in-time (JIT) inventory management system to improve efficiency, which proved robust throughout supply chain disruptions. 

Nestlé is a multinational food and beverage company that has a strategic sourcing program focused on sustainability and responsible sourcing.

The company works closely with suppliers to ensure that its products are ethically sourced, and it has implemented a supplier relationship management program to improve supplier performance.

Neetlé strives to build long-term partnerships with its suppliers and prioritises ethical and environmentally responsible practices throughout its supply chain.

8. Johnson & Johnson

Johnson & Johnson  (J&J) has a strategic sourcing program that focuses on reducing costs, improving quality, and enhancing innovation.

The company uses advanced analytics to identify and develop strong relationships with key suppliers and has implemented a supplier diversity program to support small and diverse businesses.

Johnson & Johnson is known for prioritising diversity in its supplier base, seeking out companies owned and operated by women, minorities, and veterans, and is committed to ethical practices and works to ensure that its suppliers uphold the same standards.

7. General Electric (GE)

GE uses advanced analytics to identify opportunities for cost savings and has implemented a supplier relationship management program to improve supplier performance.

They seek out suppliers who can provide cutting-edge technologies and materials that can help to improve the performance and efficiency of its products.

At the same time, GE is committed to keeping costs under control and seeks out suppliers who can provide high-quality products and services at a competitive price.

GE's strategic sourcing status excels from its strong emphasis on risk management, as it works closely with its suppliers to ensure that they themselves have appropriate safeguards in place to mitigate potential risks.

Walmart is known for its strategic sourcing practices that have helped it to become the world's largest retailer.

The company has a well-developed supplier management program that includes the use of cutting-edge analytic tech to identify and develop strong relationships with key suppliers.

Walmart is recognised for its supply chain expertise and leverages its scale and technology to drive efficiencies throughout its operations.

The company is committed to collaboration and sustainability - seeking out suppliers who share this commitment and encouraging them to adopt more sustainable practices and reduce their environmental impact.

5. Coca-Cola Company

Coca-Cola has a well-established strategic sourcing program that has enabled it to maintain its position as one of the world's largest beverage companies.

The company's procurement strategy includes a focus on supplier diversity, the development of long-term relationships with suppliers, and the use of advanced analytics to improve supply chain performance.

The company seeks out suppliers who can provide high-quality ingredients and materials that meet its strict standards for taste and consistency.

Coca Cola is also committed to innovation and works closely with its suppliers to develop new products and packaging solutions that can help to improve the customer experience with sustainability being another key element of Coca Cola's world-class sourcing strategy.

The company has set ambitious goals to reduce its environmental impact and seeks out suppliers who share these values and are committed to sustainable practices

Amazon has revolutionised the retail industry with its strategic sourcing practices.

The company leverages its massive scale to negotiate better prices with suppliers, uses advanced data analytics to improve supplier performance, and has implemented a unique inventory management system that allows it to keep costs low.

Committed to providing a wide selection of products at competitive prices, Amazon seeks out suppliers who can help it to achieve this goal.

Amazon also prioritises innovation and works closely with its suppliers to develop new products and services that can improve the customer experience.

Efficiency is another key element of Amazon's sourcing strategy.

Amazon leverages its scale and technology to drive efficiencies throughout its operations, and is able to provide a seamless shopping experience for its customers while promoting innovation and driving down costs.

3. Toyota Motor Corporation

Toyota has a well-known strategic sourcing strategy that has helped the company to become one of the largest and most successful automotive manufacturers in the world.

The company focuses on developing strong relationships with suppliers, using advanced technology to improve supply chain efficiency, and implementing a JIT inventory management system.

Toyota is committed to ensuring that its suppliers provide high-quality components and materials that meet its rigorous standards for safety and reliability.

Long-term partnerships are another key element of Toyota's sourcing strategy.

This approach helps to ensure continuity and stability in the supply chain, which in turn supports Toyota's reputation for quality and reliability.

2. Procter & Gamble (P&G)

P&G is a multinational consumer goods company that has made strategic sourcing a key part of its business strategy, propelling it into the status of one of the most successful companies in the world of business. 

The company has implemented a supplier relationship management program that enables it to work closely with suppliers to reduce costs, improve quality and enhance innovation at world-class levels.

P&G is committed to sustainability and works closely with its suppliers to reduce its environmental impact and improve social responsibility throughout its supply chain.

By prioritiaing innovation, sustainability and collaboration, P&G is able to provide high-quality products to its customers while also promoting environmental responsibility and innovation.

1. Apple Inc.

In first place is Apple ; renowned for strategic sourcing practices that have enabled the company to maintain its competitive edge in the technology industry.

Apple's strategic sourcing is unique in its emphasis on innovation, design, and social responsibility.

The company seeks out suppliers who can provide cutting-edge technologies and materials that can help to enhance the performance and design of its products.

Known for its iconic design aesthetic, Apple collaborates with suppliers who can help it to maintain its high standards for aesthetics and functionality.

Apple is also committed to social responsibility and works closely with its suppliers to ensure that they uphold ethical and sustainable practices.

It has a strict code of conduct that governs its suppliers' operations, and regularly audits its supply chain to ensure compliance with these standards.

Apple promotes diversity and inclusion in its supplier base, seeking out suppliers who are owned and operated by women, minorities and veterans.

By prioritising innovation, design and social responsibility, Apple is able to create products that are both technologically advanced and socially responsible, while also maintaining its position as a leading global brand.

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strategic sourcing

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• Susan Fogarty, Senior Director

What is strategic sourcing and how does it work?

Strategic sourcing is an approach to supply chain management that formalizes the way information is gathered and used. It lets an organization consolidate its purchasing power to find the best possible values in the marketplace and align its purchasing strategy to business goals.

Strategic sourcing has become a more common strategy with the rise of digital supply chains . It requires analysis of what an organization buys, from whom, at what price and at what volume. Strategic sourcing differs from conventional purchasing because it places emphasis beyond initial purchase price to focus on total cost of ownership and optimizing the sourcing process through ongoing market research and building relationships with suppliers.

Businesses use strategic sourcing to make their procurement processes less shortsighted and less focused on price. With a sourcing plan, they can develop an adaptable system that contributes to the overall long-term value of the business.

The process begins with analyzing business needs and historical spending. The next step is to outline a strategic plan, and then collect data and conduct market analysis that guides decision-making on supplier selection.

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Once suppliers are selected, contract negotiations take place with each supplier to determine specific terms of the relationship. Strategic sourcing also involves measuring performance and improving the process on a continual basis. Large organizations usually include many suppliers in their strategic sourcing activities. Organizations that wish to delegate the sourcing decision function to a specialist can turn to outsourcing providers.

7 strategic sourcing process steps

The strategic sourcing process has many variations, but it's commonly broken into seven steps popularized by consulting firm Kearney. A typical step-by-step strategic sourcing process includes the following:

• Product categories. Analyze product categories the business uses, as well as its spending patterns, and the processes and departments involved.
• Sourcing strategy. Develop a sourcing strategy based on business goals.
• Supplier portfolio. Assess the supplier market and create a portfolio of potential suppliers.
• Requests for proposal (RFPs). Define RFP criteria and templates.
• Final supplier list. Negotiate with and create a final roster of suppliers.
• Onboard new suppliers. Integrate new vendors and outsourcing providers into existing processes.
• Optimize the process. Track performance metrics and optimize the sourcing plan and workflows, as needed.

Benefits of strategic sourcing

The benefits of rethinking sourcing processes and initiatives can be far-reaching. As businesses take advantage of the vast amounts of available data and digitization of business processes, procurement is an area ripe for transformation. The following are some of the competitive advantages of pursuing a strategic sourcing strategy:

• Transformed sourcing. Strategic sourcing can transform a process focused merely on cost savings to one that maximizes value. It is especially good for optimizing long-term decision-making and maintaining good relationships with suppliers.
• Increased productivity. This approach automates rote purchasing activities so that humans can focus on more productive tasks. It also relies on data and analytics to streamline decision-making and other processes.
• Cost savings. Strategic sourcing requires data and market analyses that pinpoint the best suppliers and negotiations for a particular business's needs, thus leading to cost savings.
• Visibility into potential risk factors. An in-depth understanding of supplier markets can help identify risks and enable businesses to develop sourcing plans to improve risk management and mitigate risk.
• Increased flexibility. Continued improvement and sustainability of supply chains lets businesses adapt to external factors and changes.
• Strong supplier relationships. Strategic sourcing leads to close and long-term relationships with suppliers and outsourcers.
• Supply chain efficiency. Careful analyses will pinpoint useful improvements to streamline supply chain processes.
• Improved demand forecasting. These analyses can lead to more accurate demand forecasting and the visibility needed to ensure continuous improvement and meet customer demand in the future.

Strategic sourcing examples

A strategic sourcing plan helps businesses achieve several goals. Examples of these include the following:

• Managing environmental conditions and logistics. This approach involves sourcing crops or goods in locations where they're readily available or that have easy access to transportation. It also requires using logistics capabilities to get them where they need to be.
• Obtaining competitive differentiation. This is a strategy where businesses use suppliers with desired brand images and emphasize them through marketing, such as when laptop manufacturers use the Intel Inside logo.
• Meeting compliance and regulatory guidelines. This is best done by choosing certified components.
• Supporting business sustainability. Organizations increase business sustainability through the use of fair trade and other sustainably grown or manufactured goods.
• Mitigating geopolitical instability. This involves diversifying supplier locations and creating contingency plans for suppliers in volatile areas.
• Minimizing risk. Businesses identify secondary and alternative suppliers, and closely monitor changes in factors such as product availability, quality, shipping, taxes, exchange rates and regulations.

Strategic sourcing vs. procurement

Strategic sourcing and procurement differ in scope and in their overall goals.

Procurement

Procurement refers to the activities and procedures necessary for businesses to acquire products and services. While this technically involves both strategic and administrative responsibilities, procurement departments often focus on the day-to-day transactions and processes involved in e-procurement , such as purchase orders, invoicing and payments.

A company's procurement department is typically headed by a chief procurement officer. Procurement professionals oversee purchases and ensure they align with company goals, as well as other factors such as profit margins and cost reduction.

Strategic sourcing

In contrast, strategic sourcing emphasizes the activities leading up to an actual purchase, including analyzing business needs and the marketplace at large. While a procurement strategy generally looks for the lowest-priced option, strategic sourcing looks at the big picture, employing large data sets to evaluate the value of other factors, such as optimal vendor relationships and reduced risk to the business.

Strategic sourcing software

Strategic sourcing software is used to standardize sourcing requirements and provide a platform for collecting information about supplier performance, products, markets and business needs. This software is sometimes part of a larger procurement system, procure-to-pay platform, enterprise resource planning system or supply chain management system.

Products that are labeled "strategic sourcing application suites" are growing in popularity, however. These typically include functionality -- and often have separate software modules -- for e-sourcing, spend analysis, contract management, warehouse management and supplier relationship management . Some vendors in this market, according to Gartner , include Coupa, GEP, Ivalua, Jaggaer, SAP, Workday and Zycus.

Nascent artificial intelligence (AI) technologies are making the sourcing process more effective. For example, businesses are using natural language processing tools to analyze contracts with suppliers for potential risks, and using predictive analytics tools to predict future market trends based on factors such as market conditions, time of year and geopolitical situations. AI technology is also able to recommend which suppliers are best to work with based on their past performances, current metrics and a customer's needs.

Finally, the integration of blockchain into the supply chain is increasing visibility and accuracy. For example, a blockchain platform can record a series of transactions that occur during procurement and throughout a supply chain to enable a business and other stakeholders to track the flow of goods and purchases.

Sustainable procurement is a new trend affecting procurement strategy and process. Find out what sustainable procurement is and how it's influencing IT buying .

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10 Example of Sourcing Strategy for Supply Chain

Supply chain sourcing is a critical component of managing your business’s supply chain effectively. In this blog, we’ll explore how to implement these best practices in your business with global sourcing .

Sourcing encompasses the entire process of evaluating and selecting suitable suppliers to help your organization stay competitive in the market. Quality and cost savings are essential criteria when choosing a sourcing partner.

It’s important to note that sourcing focuses on direct goods and services, while procurement deals with indirect goods.

Table of Contents

Supply Chain Sourcing: An Essential Aspect

Sourcing plays a pivotal role in your supply chain, as it involves finding high-quality products at competitive prices for your business.

In today’s competitive landscape, business owners are constantly seeking reliable suppliers to streamline the sourcing process.

In fact, 70% of sourcing and procurement professionals use suppliers to access new technology services or expand beyond their core business model. Depending on your company’s size and long-term goals, there are various strategies you can adopt.

In this blog post, we’ll provide you with a comprehensive overview of sourcing, including its definition, types, and how it differs from procurement.

What is Supply Chain Sourcing?

Supply chain sourcing refers to the process of finding suppliers to provide the products and services necessary for your business’s daily operations. This process also involves evaluating and selecting suitable suppliers to maintain your organization’s competitive edge in the market.

While sourcing may appear straightforward, it can be a complex process. Choosing the wrong supplier can have costly consequences, so companies carefully assess several factors before making a decision. The supplier selection process includes:

• Identifying sources of quality goods and products
• Negotiating contracts
• Establishing payment terms
• Conducting market surveys
• Quality testing
• Outsourcing goods
• Establishing standards

Following these steps puts you on the path to creating an optimized sourcing strategy.

Example of Sourcing

There are various sourcing examples that businesses can adopt based on their specific supply chain needs.

Consider factors such as long-term cost-effectiveness and product quality when choosing the right sourcing approach.

Here are some characteristics and examples of sourcing:

• Global sourcing: This involves purchasing raw materials or essential items from other countries worldwide, offering advantages in terms of affordability and quality.
• Low-cost country sourcing : This strategy focuses on cost-effective sourcing of raw materials from countries like India and China.
• Prime/sub arrangements : Companies rely on outsourcing agents who, in turn, subcontract the sourcing work to other firms.
• Captive service operations : A group of companies or subsidiaries responsible for procuring goods.
• Conventional agreements : Traditional sourcing methods involving direct agreements between two parties, making it the simplest sourcing type.

Understanding these concepts is crucial for the smooth operation of your daily warehouse activities, and they offer additional benefits, as we’ll explore in the following sections.

Why is Supply Chain Sourcing Important?

For businesses of all sizes, factors like cost structure, profit margins, and competitiveness are critical for sustained success. Supply chain sourcing is instrumental in achieving these objectives, enabling companies to establish efficient and consistent supply chains.

Cost Management

Strategically implemented sourcing benefits both buyers and suppliers. They can negotiate lower prices for larger purchase volumes, resulting in reduced costs and competitive sales prices.

A strong supplier relationship is vital for business operations. When companies find reliable suppliers, both parties can build a mutually beneficial partnership. Buyers can depend on suppliers for consistent product quality.

Risk Management

Establishing a solid buyer-supplier relationship enables effective risk management. Both parties can rely on each other for transparency and accountability.

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The Supply Chain Sourcing Process

While sourcing involves several processes, their effectiveness lies in creating an optimized supply chain. Let’s take a closer look at these processes:

Selecting a Supplier & Strategic Planning

The choice of supplier significantly impacts a company’s reputation and operations. Companies should carefully select suppliers based on factors such as experience, cost-effectiveness, customer service, delivery time, product availability, and recent customer reviews. Suppliers often become long-term business partners, emphasizing the importance of selecting reliable and trustworthy ones.

Securing a Supplier

Securing a supplier involves taking actionable steps to ensure the selected supplier can benefit your company. This step includes thorough research to assess a supplier’s reputation, customer reviews, and necessary certifications. Negotiations should result in favorable terms for both parties, including payment and delivery agreements.

Choosing a Supplier Delivery Model

Depending on your agreement, several delivery models are available:

• Just-in-time model: Supplies are received as needed.
• Continuous replenishment: Ordering supplies in small batches based on inventory demand.
• On-demand: Supplies are produced upon request.

Creating a Contract

A well-drafted contract should include all agreements, such as delivery models, payment terms, contract duration, and more. Both parties should sign the contract for legal assurance, indicating their commitment to fulfilling their obligations.

Pros and Cons of Global Sourcing

Many companies adopt international sourcing to reduce production costs, but this comes with limitations in quality control. Let’s delve into the advantages and disadvantages of global sourcing :

Advantages of Sourcing

• Reduced production costs over the long term.
• Increased manufacturing efficiency.
• Optimization of the supply chain for effectiveness.

Disadvantages of Sourcing

• Lack of quality control due to distance.
• Supply chain delays.
• Potential communication issues.

Supply Chain Sourcing vs. Procurement: Procurement Strategies

Procurement encompasses the full process of sourcing and using suppliers to gather all necessary materials for products, services, and indirect costs.

It involves ordering, paying for goods, and receiving them. While both sourcing and procurement are essential supply chain components, they differ in their focus. Sourcing centers on direct goods and services, while procurement deals with indirect goods.

Companies can choose to combine sourcing and procurement departments for effectiveness or select the most suitable approach for their needs.

Top 10 Examples of Sourcing Strategy 

Strategic sourcing helps companies secure goods and services while focusing on ESGs and D&I. Here are the top 10 companies that excel in strategic sourcing examples:

10. BMW Group

BMW has a strong strategic sourcing program, emphasizing long-term supplier relationships, efficient supply chains, and cost reduction. They are also committed to sustainability and innovation.

Nestlé’s strategic sourcing program prioritizes sustainability and responsible sourcing. They work closely with suppliers to ensure ethical sourcing and have a supplier relationship management program in place.

8. Johnson & Johnson

Johnson & Johnson focuses on cost reduction, quality improvement, and innovation through strategic sourcing. They use advanced analytics to build strong relationships with key suppliers and promote diversity in their supplier base.

7. General Electric (GE)

GE uses advanced analytics and supplier relationship management to enhance performance. They seek cutting-edge technologies and materials from suppliers while maintaining cost control and risk management.

Walmart’s strategic sourcing practices have made it the world’s largest retailer. They use analytics to build strong relationships with key suppliers, drive operational efficiencies, and promote collaboration and sustainability.

5. Coca-Cola Company

Coca-Cola maintains its position as a global beverage leader with strategic sourcing. Their procurement strategy includes supplier diversity, long-term relationships, and advanced analytics for supply chain improvement.

Amazon revolutionizes retail with its massive scale and strategic sourcing. They negotiate better prices, use data analytics to improve supplier performance, and focus on efficiency and innovation.

3. Toyota Motor Corporation

Toyota’s strategic sourcing strategy focuses on strong supplier relationships, technology-driven supply chain improvements, and JIT inventory management. They prioritize high-quality components and long-term partnerships.

2. Procter & Gamble (P&G)

P&G emphasizes strategic sourcing as a key part of its business strategy. They work closely with suppliers to reduce costs, improve quality, and enhance innovation, all while promoting sustainability.

1. Apple Inc.

Apple maintains its competitive edge in technology through innovative and socially responsible strategic sourcing. They seek cutting-edge technologies, prioritize design and social responsibility, and promote diversity and inclusion in their supplier base. Apple’s strict code of conduct ensures ethical and sustainable practices among suppliers.

These companies showcase how strategic sourcing can drive success by focusing on innovation, sustainability, and collaboration.

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Sample Business Plan

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The following business plan for the fictional firm of "Acme Management Technology" (AMT) is an example of what a completed business plan might look like. This example is provided as part of the instructions and detailed descriptions included in the Components of a Business Plan.

Sample Business Plan for Acme Management Technology

1.0 executive summary.

By focusing on its strengths, its key customers , and the company's underlying core values, Acme Management Technology will increase sales to more than $10 million in three years, while also improving the gross margin on sales and cash management and working capital .

This business plan leads the way by renewing our vision and strategic focus of adding value to our target market segments—the small business and high-end home office users in our local market. It also provides a step-by-step plan for improving our sales, gross margin, and profitability.

This plan includes this summary, and chapters on the company, products & services, market focus, action plans & forecasts, management team, and financial plan.

1.1 Objectives

• Sales increased to more than $10 million by the third year.
• Bring gross margin back up to above 25% and maintain that level.
• Sell $2 million of service, support, and training by 2022.
• Improve inventory turnover to six turns next year, seven in 2021, and eight in 2022.

1.2 Mission

AMT is built on the assumption that the management of information technology for business is like legal advice, accounting, graphic arts, and other bodies of knowledge, in that it is not inherently a do-it-yourself prospect. Smart business people who aren't computer hobbyists need to find quality vendors of reliable hardware, software, service, and support and they need to use these quality vendors as they use their other professional service suppliers—as trusted allies.

AMT is such a vendor. It serves its clients as a trusted ally, providing them with the loyalty of a business partner and the economics of an outside vendor. We make sure that our clients have what they need in order to run their businesses at peak performance levels, with maximum efficiency and reliability.

Many of our information applications are mission-critical, so we assure our clients that we'll be there when they need us.

1.3 Keys to Success

• Differentiate from box-pushing, price-oriented businesses by offering and delivering service and support—and charging for it accordingly.
• Increase gross margin to more than 25%.
• Increase our non-hardware sales to 20% of the total sales by the third year.

2.0 Company Summary

AMT is a 10-year-old computer reseller with sales of $7 million per year, declining margins, and market pressure. It has a good reputation, excellent people, and a steady position in the local market, but has been having difficulty maintaining healthy financials.

2.1 Company Ownership

AMT is a privately-held C corporation owned in majority by its founder and president, Ralph Jones. There are six part owners, including four investors and two past employees. The largest of these (in percent of ownership) are Frank Dudley, our attorney, and Paul Karots, our public relations consultant. Neither owns more than 15%, but both are active participants in management decisions.

2.2 Company History

AMT has been caught in the vise grip of margin squeezes that have affected computer resellers worldwide. Although the chart titled "Past Financial Performance" shows that we've had healthy growth in sales, it also indicates declining gross margin and declining profits .

The more detailed numbers in Table 2.2 include other indicators of some concern: As can be seen in the chart, the gross margin percentage has been declining steadily, and nventory turnover is getting steadily worse as well.

All of these concerns are part of the general trend affecting computer resellers. The margin squeeze is happening throughout the computer industry, worldwide.

Past Performance	2015	2016	2017
Sales	$3,773,889	$4,661,902	$5,301,059
Gross	$1,189,495	$1,269,261	$1,127,568
Gross % (calculated)	31.52%	27.23%	21.27%
Operating Expenses	$752,083	$902,500	$1,052,917
Collection period (days)	35	40	45
Inventory turnover	7	6	5

Balance Sheet: 2018

Short-Term Assets

• Cash—$55,432
• Accounts receivable—$395,107
• Inventory—$651,012
• Other Short-term Assets—$25,000
• Total Short-term Assets—$1,126,551

Long-Term Assets

• Capital Assets—$350,000
• Accumulated Depreciation—$50,000
• Total Long-term Assets—$300,000
• Total Assets—$1,426,551

Debt and Equity

• Accounts Payable—$223,897
• Short-term Notes—$90,000
• Other ST Liabilities—$15,000
• Subtotal Short-term Liabilities—$328,897
• Long-term Liabilities—$284,862
• Total Liabilities—$613,759
• Paid in Capital—$500,000
• Retained Earnings—$238,140
• Earnings (over three years)—$437,411, $366,761, $74,652
• Total Equity—$812,792
• Total Debt and Equity—$1,426,551

Other Inputs: 2017

• Payment days—30
• Sales on credit—$3,445,688
• Receivables turnover—8.72%

2.4 Company Locations and Facilities

We have one location—a 7,000 square-foot brick & mortar facility located in a suburban shopping center conveniently close to the downtown area. Along with sales, it includes a training area, service department, offices, and showroom area.

3.0 Products and Services

AMT sells personal computer technology for small business including personal computer hardware, peripherals, networks, software, support, service, and training.

Ultimately, we are selling information technology . We sell reliability and confidence. We sell the assurance to small business people that their business will not suffer any information technology disasters or critical downtimes.

AMT serves its clients as a trusted ally, providing them with the loyalty of a business partner and the economics of an outside vendor. We make sure that our clients have what they need to run their businesses at peak performance levels, with maximum efficiency and reliability. Since many of our information applications are mission-critical, we give our clients the confidence that we'll be there when they need us.

3.1 Product and Service Description

In personal computers , we support three main lines:

• The Super Home is our smallest and least expensive, initially positioned by its manufacturer as a home computer. We use it mainly as an inexpensive workstation for small business installations. Its specifications include: (add relevant information)
• The Power User is our main up-scale line and our most important system for high-end home and small business main workstations, because of (add relevant information) Its key strengths are: (add relevant information) Its specifications include: (add relevant information)
• The Business Special is an intermediate system, used to fill the gap in positioning. Its specifications include: (add information)

In peripherals , accessories and other hardware, we carry a complete line of necessary items from cables to forms to mousepads to... (add relevant information)

In service and support , we offer a range of walk-in or depot service, maintenance contracts, and on-site guarantees. We haven't had much success in selling service contracts. Our networking capabilities include... (add relevant information)

In software , we sell a complete line of... (add relevant information)

In training , we offer... (add relevant information)

3.2 Competitive Comparison

The only way we can hope to differentiate effectively is to brand the vision of the company as a trusted information technology ally to our clients. We will not be able to compete in any effective way with the chains using boxes or products as appliances. We need to offer a real alliance that feels personal.

The benefits we sell include many intangibles: confidence, reliability, knowing that somebody will be there to answer questions and help at critical times.

These are complex products that require serious knowledge and experience to use, which we have, while our competitors sell only the products themselves.

Unfortunately, we cannot sell the products at a higher price simply because we offer services; the market has shown that it will not support that concept. We must also sell the service and charge for it separately.

3.3 Sales Literature

Copies of our brochure and advertisements are attached as appendices. Of course, one of our first tasks will be to change the messaging of our literature to make sure we are selling the company, rather than the product.

3.4 Sourcing

Our costs are part of the margin squeeze. As price competition increases, the squeeze between the manufacturer's price into channels and the end-users ultimate buying price continues.

Our margins are declining steadily for our hardware lines. We generally buy at... (add relevant information) Our margins are thus being squeezed from 25% from five years ago to closer to 13 to 15% at present. A similar trend shows for our main-line peripherals, with prices for printers and monitors declining steadily. We are also starting to see that same trend with software...(add relevant information)

To hold costs down as much as possible, we concentrate our purchasing with Hauser, which offers 30-day net terms and overnight shipping from the warehouse in Dayton. We need to continue to make sure our volume gives us negotiating strength.

In accessories and add-ons, we can still get decent margins of 25 to 40%.

For software, margins are: (add relevant information)

3.5 Technology

For years, we have supported both Windows and Macintosh technology for CPUs, although we've switched vendors many times for the Windows (and previously DOS) lines. We are also supporting Novell, Banyon, and Microsoft networking, Xbase database software, and Claris application products.

3.6 Future Products and Services

We must remain on top of emerging technologies because this is our bread and butter. For networking, we need to provide better knowledge of cross-platform technologies. We are also under pressure to improve our understanding of the direct-connect Internet and related communications. Finally, although we have a good command of desktop publishing, we are concerned about improving integrated fax, copier, printer, and voicemail technology into the computer system.

4.0 Market Analysis Summary

AMT focuses on local markets, small business, and home office, with a special focus on the high-end home office and the five-to-20 unit small business office.

4.1 Market Segmentation

The segmentation allows some room for estimates and nonspecific definitions. We focus on a small-medium level of small business, and it's hard to locate data to make an exact classification. Our target companies are large enough to require the kind of high-quality information technology management we offer but too small to have a separate computer management staff (such as an MIS department). We say that our target market has 10 to 50 employees, and requires five to 20 connect workstations in a local area network, however, the definition is flexible.

Defining the high-end home office is even more difficult. We generally know the characteristics of our target market, but we can't find easy classifications that fit into available demographics. The high-end home office business is a business, not a hobby. It generates enough money to merit the owner's paying real attention to the quality of information technology management, meaning that both budget and productivity concerns warrant working with our level of quality service and support. We can assume that we aren't talking about home offices used only part-time by people who work elsewhere during the day and that our target market home office needs powerful technology and sufficient links between computing, telecommunications, and video assets.

4.2 Industry Analysis

We are part of the computer reselling business, which includes several kinds of businesses:

• Computer dealers : storefront computer resellers, usually less than 5,000 square feet, often focused on a few main brands of hardware, usually offering only a minimum of software and variable amounts of service and support. Many are old-fashioned (1980s-style) computer stores that offer relatively few reasons for buyers to shop with them. Their service and support are not usually very good, and their prices are normally higher than those at larger stores.
• Chain stores and computer superstores : these include major chains such as CompUSA, Best Buy, Future Shop, etc. They almost always have a footprint of over 10,000 square feet of space, usually offer decent walk-in service, and are often warehouse-like locations where people go to find products in boxes with very aggressive pricing, but little support.
• Mail order/Online retailers : the market is served increasingly by mail order and online retailers that offer aggressive pricing of a boxed product. For the purely price-driven buyer, who buys boxes and expects no service, these are very good options.
• Others : there are many other channels through which people buy their computers, however, most are variations of the three main types above.

4.2.1 Industry Participants

• The national chains are a growing presence: CompUSA, Best Buy, and others. They benefit from national advertising, economies of scale, volume buying, and a general trend toward name-brand loyalty for buying in the channels as well as for products.
• Local computer stores are threatened. These tend to be small businesses, owned by people who started them because they liked computers. They are under-capitalized and under-managed. Margins are squeezed as they compete against chains, in a competition based on price more than on service and support.

4.2.2 Distribution Patterns

Small business buyers are accustomed to buying from vendors who visit their offices. They expect the copy machine vendors, office products vendors, and office furniture vendors, as well as the local graphic artists, freelance writers, or whomever, to visit their office to make their sales.

There is usually a lot of leakage in ad-hoc purchasing through local chain stores and mail order. Often the administrators try to discourage this but are only partially successful.

Unfortunately, our home office target buyers don't expect to buy from us. Many of them turn immediately to the superstores (office equipment, office supplies, and electronics) and mail order to look for the best price, without realizing that there is a better option for them at only a little bit more.

4.2.3 Competition and Buying Patterns

The small business buyers understand the concept of service and support and are much more likely to pay for it when the offering is clearly stated.

There is no doubt that we face stiffer competition from box pushers than from other service providers. We need to effectively compete against the idea that businesses should buy computers as plug-in appliances that don't need ongoing service, support, and training.

Our focus group sessions indicated that our target home office buyers think about the price but would buy based on quality service if the offering were properly presented. They think about the price because that's all they ever see. We have very good indications that many would rather pay 10 to 20% more for a relationship with a long-term vendor providing back-up and quality service and support, however, they end up in the box-pusher channels because they aren't aware of the alternatives.

Availability is also very important. The home office buyers tend to want immediate, local solutions to problems.

4.2.4 Main Competitors

Chain stores:

• We have Store 1 and Store 2 already within the valley, and Store 3 is expected by the end of next year. If our strategy works, we will have differentiated ourselves sufficiently to avoid competition against these stores.
• Strengths: national image, high volume, aggressive pricing, economies of scale.
• Weaknesses: lack of product, service and support knowledge, lack of personal attention.

Other local computer stores:

• Store 4 and Store 5 are both in the downtown area. They are both competing against the chains in an attempt to match prices. When asked, the owners will complain that margins are squeezed by the chains and customers buy based on price only. They say they tried offering services and that buyers didn't care, instead preferring lower prices. We think the problem is that they didn't really offer good service, and also that they didn't differentiate from the chains.

4.3 Market Analysis

The home offices in Tintown are an important growing market segment. Nationally, there are approximately 30 million home offices, and the number is growing at 10% per year. Our estimate in this plan for the home offices in our market service area is based on an analysis published four months ago in the local newspaper.

There are several types of home offices. For the focus of our plan, the most important are those that are real businesses offices from which people earn their primary income. These are likely to be people in professional services such as graphic artists, writers, and consultants, some accountants—and the occasional lawyer, doctor, or dentist. We will not be focusing on the market segment that includes part-time home offices with people who are employed during the day but work at home at night, people who work at home to provide themselves with a part-time income, or people who maintain home offices relating to their hobbies.

Small business within our market includes virtually any business with a retail, office, professional, or industrial location outside of the home, and fewer than 30 employees. We estimate there are 45,000 such businesses in our market area.

The 30-employee cutoff is arbitrary. We find that the larger companies turn to other vendors, but we can sell to departments of larger companies, and we shouldn't give up such leads when we get them.

Market Analysis . . . (numbers and percentages)

5.0 Strategy and Implementation Summary

• Emphasize service and support.

We must differentiate ourselves from the box pushers. We need to establish our business offering as a clear and viable alternative to the price-only kind of buying for our target market.

• Build a relationship-oriented business.

Build long-term relationships with clients, not single-transaction deals with customers. Become their computer department, not just a vendor. Make them understand the value of the relationship.

• Focus on target markets.

We need to focus our offerings on small business as the key market segment we should own. This means the five to 20 unit system, connected by a local area network, in a company with five to 50 employees. Our values—training, installation, service, support, knowledge—are more clearly differentiated in this segment.

As a corollary, the high end of the home office market is also appropriate. We do not want to compete for buyers who go to chain stores or buy from mail-order outlets, but we definitely want to be able to sell individual systems to the smart home office buyers who want a reliable, full-service vendor.

• Differentiate and fulfill the promise.

We can't just market and sell service and support; we must deliver as well. We need to make sure we have the knowledge-intensive business and service-intensive business we claim to have.

5.1 Marketing Strategy

The marketing strategy is the core of the main strategy:

• Emphasize service and support
• Build a relationship business
• Focus on small business and high-end home office as key target markets

5.1.2 Pricing Strategy

We must charge appropriately for the high-end, high-quality service and support we offer. Our revenue structure has to match our cost structure, so the salaries we pay to assure good service and support must be balanced by the revenue we charge.

We cannot build the service and support revenue into the price of products. The market can't bear the higher prices, and the buyer feels ill-used when they see the same product priced lower at the chains. Despite the logic behind it, the market doesn't support this concept.

Therefore, we must make sure that we deliver and charge for service and support. Training, service, installation, networking support—all of this must be readily available and priced to sell and deliver revenue.

5.1.3 Promotion Strategy

We depend on newspaper advertising as our main outlet to reach new buyers. As we change strategies, however, we need to change the way we promote ourselves:

• Advertising

We'll be developing our core positioning message: "24 Hour On-Site Service—365 Days a Year With No Extra Charges" to differentiate our service from the competition. We will be using local newspaper advertising, radio, and cable TV to launch the initial campaign.

• Sales Brochure

Our collaterals have to sell the store and visiting the store, not the specific book or discount pricing.

• Direct Mail 

We must radically improve our direct mail efforts, reaching our established customers with training, support services, upgrades, and seminars.

• Local Media

It's time to work more closely with the local media . We could offer the local radio station a regular talk show on technology for small business, as one example. We could also reach out to local news outlets to let them know we have experts who are able to address issues relating to technology for small business/home offices should the need arise.

5.2 Sales Strategy

• We need to sell the company, not the product. We sell AMT, not Apple, IBM, Hewlett-Packard, or Compaq, or any of our software brand names.
• We have to sell our service and support. The hardware is like the razor, and the support, service, software services, training, and seminars are the razor blades. We need to serve our customers with what they need.

The Yearly Total Sales chart summarizes our ambitious sales forecast. We expect sales to increase from $5.3 million last year to more than $7 million next year and to more than $10 million in the last year of this plan.

5.2.1 Sales Forecast

The important elements of the sales forecast are shown in the Total Sales by Month in Year 1 table. The non-hardware sales increase to about $2 million total in the third year.

Sales Forecast … (numbers and percentages)

5.2.2 Startup Summary

• 93% of startup costs will go to assets.
• The building will be purchased with a down payment of $8,000 on a 20-year mortgage. The espresso machine will cost $4,500 (straight-line depreciation, three years).
• Startup costs will be financed through a combination of owner investment, short-term loans, and long-term borrowing. The startup chart shows the distribution of financing.

Other miscellaneous expenses include:

• Marketing/advertising consultancy fees of $1,000 for our company logo and assistance in designing our grand-opening ads and brochures.
• Legal fees for corporate organization filings: $300.
• Retail merchandising/designing consultancy fees of $3,500 for store layout and fixture purchasing.
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E-Paper | August 18, 2024

Multinational companies plan exit amid internet disruptions: pakistan business council.

KARACHI: The Pakistan Business Council (PBC) warned on Friday that several multinational companies are planning to relocate their back offices from Pakistan, with many having already done so recently.

The warning came amid a report by the Dubai Chamber of Commerce that 3,968 Pakistani companies registered in Dubai between January and June 2024 — making Pakistan the second-ranked country on the list. The figure was also 17 per cent higher than the 3,395 firms registered during the same period in 2023.

Last year, the Dubai Chamber of Commerce registered 8,036 new Pakistani businesses.

The surge in Dubai-based Pakistani businesses highlights a growing exodus from a country already grappling with severe unemployment and sluggish economic growth. As hundreds of thousands of skilled and unskilled workers have already left Pakistan, millions more are reportedly seeking opportunities abroad.

Says high-speed connectivity vital for domestic economy

“Many multinational companies (MNCs) are either planning to relocate their back offices from Pakistan or have already done so, as the reported imposition of a firewall causes widespread internet disruptions across the country,” the PBC said in a statement.

This migration reflects a deepening lack of confidence in the government’s economic policies. Key factors contributing to this trust deficit include the high cost of doing business, political uncertainties, soaring electricity costs, and deteriorating law and order.

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“While we struggle with the costs of idle capacity in power generation leading to unemployment and loss of exports and tax revenue, we now have to contend with the threat of idle capacity in the emerging software sector due to poor execution of a firewall,” the PBC said.

The tech industry has already expressed serious concern over the recent internet slowdown, warning that these disruptions could cost Pakistan up to $300 million. The PBC asked the authorities concerned to go back and get the right firewall or learn to apply it without creating an unnecessary impact on employment and exports.

“IT and IT-enabled services, besides agriculture and tourism, offer a valuable opportunity to achieve the PM’s export target over the next three years. High-speed connectivity is also vital for the domestic economy,” the council said.

The Overseas Investors Chamber of Commerce and Industry (OICCI) also warned that frequent internet disruptions in Pakistan could derail the country’s economic progress.

The Pakistan Software Houses Association said in a statement that these disruptions are not mere inconveniences but a direct, tangible and aggressive assault on the industry’s viability, inflicting devastating financial losses estimated to reach $300m, which can increase exponentially.

Published in Dawn, August 17th, 2024

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Harris Plans to Ban Grocery ‘Price Gouging.’ What Does the Evidence Say?

Price increases when demand exceeds supply are textbook economics. The question is whether, and how much, the pandemic yielded an excess take.

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By Jim Tankersley and Jeanna Smialek

Reporting from Washington

Vice President Kamala Harris’s economic agenda for her presidential campaign features an argument that blames corporate price gouging for high grocery prices.

That message polls well with swing voters. It has been embraced by progressive groups , which regularly point to price gouging as a driver of rapid inflation, or at least something that contributes to rapid price increases. Those groups cheered the announcement late Wednesday that Ms. Harris would call for a federal ban on corporate price gouging on groceries in an economic policy speech on Friday.

But the economic argument over the issue is complicated.

Economists have cited a range of forces for pushing up prices in the recovery from the pandemic recession, including snarled supply chains, a sudden shift in consumer buying patterns , and the increased customer demand fueled by stimulus from the government and low rates from the Federal Reserve. Most economists say those forces are far more responsible than corporate behavior for the rise in prices in that period.

Biden administration economists have found that corporate behavior has played a role in pushing up grocery costs in recent years — but that other factors have played a much larger one.

The Harris campaign announcement on Wednesday cited meat industry consolidation as a driver of excessive grocery prices, but officials did not respond on Thursday to questions about the evidence Ms. Harris would cite or how her proposal would work.

There are examples of companies telling investors in recent years that they have been able to raise prices to increase profits. But even the term “price gouging” means different things to different people.

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