Tonight, I'd like to welcome a guest columnist to Spend Matters. Brian Sommer is a Senior Fellow at Azul Partners, founder of Tech Ventive, and is author of the blog Services Safari. Brian recently spoke at a gathering of CPOs and purchasing heads across a range of industries (whose names and companies we'll keep quiet to protect the innocent) and was not overly impressed with what he saw. I've asked him to write about his experience for Spend Matters readers.
Brian Sommer: I was a last minute speaker for a spend management mini-conference this week. As the final speaker of the day, I had the opportunity to hear many sourcing professionals speak about their best practices, successes, etc. in their Fortune 500 organizations. My impression of the state of corporate sourcing was a mixed one after this event.
Most of the executives present are clearly hungry for new abilities to make their ever leaner, smaller staffs more productive and valuable to their employers and the business units they serve. It would appear that many have frozen budgets and/or headcounts. Clearly, they must do more with less.
Virtually all of the attendees have implemented major ERP applications (and gotten only minimal results for these efforts) and many point supply performance management and sourcing applications. The latter have produced some additional positive impact on corporate ROI but many attendees indicated that they are still facing many old, but common, problems:
- No one believes their projected or realized savings numbers
- Adoption of some techniques (most notably, reverse auctions and catalogs) is still very low
The focus of these executives and the solutions they hunger for are too inward -- and too limited in scope. Spend Management professionals who genuinely believe that they can get all the information they need by better analysis, sorting and presentation of internal, transaction data are doing themselves an injustice. When I described new technologies, like those of Vykor, OpenRatings, Akoya, etc., few in the room knew of these firms or of how they worked. Each of these technology firms has products that use external content or intellectual property to provide a better, forward looking decision for their users. Each solves different problems but they all incorporate non-customer data into the decision making process. That's what's missing in many procurement groups: the external insight that makes internal data, internal processes and internal technologies come alive.
My other key observation was the almost blissful lack of attention to macro-risk issues that sourcing executives really need watch. The sourcing decisions of one company or buyer (the micro view) are often short-term and low cost focused. However, when one aggregates all of a company’s sourcing decisions (or those of its industry or country), new risks become apparent and must be addressed. For example, if a company is sourcing a significant portion of its spend from one country or vendor, its risk exposure increases dramatically. On a macro scale, the overdependence of U.S. firms to source from one country, China, is taxing West Coast ports. Sourcing professionals really need to look at the totality of their individual purchasing decisions to see if they are exposing their firm to substantial risks. More diversified sources of goods may be needed to reduce the magnitude of some risks.
We now live in a very interesting time. Some goods and services are experiencing deflation (e.g., systems integration services, computer hardware, software) while others are quite inflationary (e.g., metals, oil, petroleum feed stocks, plastics, etc.). The prognosis for the near-term may be more of the same but there is a real risk we could see some significant inflation before long. How Spend Management professionals should act in this new world will be different than the actions we've become accustomed to the last couple of decades. Better businesses need a better way of assessing global, economic, labor and competitive changes so that better sourcing decisions can be made. I'm afraid the status quo is ineffective in our more global, networked, dynamic business world. In my view, even the most senior practitioners need a new toolset and a way of approaching their job.
Brian Sommer authors the blog: Services Safari.