BravoSolution: More Applause Deserved (Part 4)

In this post looking at more advanced use cases for current solutions in the BravoSolution user base, I'll turn the focus to sourcing -- specifically optimization, formula-based pricing and the general better structuring of inputs and data gathering to drive further analysis. It's important to note that even if you're not using Bravo's toolset (or a competitor's) today, there are lessons for all of us in how to better structure sourcing and negotiation outcomes, even if we're relegated to manual Excel-driven efforts. After all, better sourcing is as much about knowing what to discover, offering the chance to discover it (by giving suppliers flexibility) and then analyzing the results as much as it is automating and standardizing a process. Granted, without the right set of tools, your efforts won't scale very far, but for smaller opportunities, knowing how to structure your sourcing approach is more than half the battle.

BravoSolution likes to talk about the evolution to not just what they term "collaborative sourcing" but also a next level: "beyond sourcing." I know the name of this uber-sourcing level of maturity is corny, but the fundamentals of the idea are sound. For Bravo, collaborative sourcing requires developing a "deeper understanding of a supplier's economics, expressive bidding, better capacity management and optimization-based analysis." Ideally, this combination results in a next level of savings, an ability to "define strategic relationships based on capability and interest" and a shift to a true category management model to sourcing, commodities and supplier engagement. In contrast, the beyond sourcing construct takes this second level sourcing model even further, introducing changes to internal practices, the ability to blend together related problems (e.g., inventory, capacity constraints, demand volatility, etc.) with core sourcing efforts and the ability to invest and think about the longer-term rather than just episodic events and decisions.

How can this work in practice? Consider the case of a CPG company who may historically contract with a single supplier to achieve a desired output, like a particular good or item. This type of contracting requires basic information sharing (e.g., product specifications), pricing, terms, conditions, quality expectations, lead times, etc. between both parties. But in a more advanced model, the buying organization may opt to discover pricing, capacity and other information at multiple levels in the supplier chain to build up different total cost models. This can help achieve a better landed cost not only at the sourcing phase of a project lifecycle, but also earlier in the design and engineering stage by helping an organization to realize where and how cost is (or is not) locked in at all levels of the supply chain. A company might discover, for example, not only a better total cost outcome through such an endeavor, but also that particular suppliers were colluding to drive up prices at the same level outside of value-added areas (e.g., all tier one suppliers may be charging the same amount for raw materials above an index price when in fact by going down one level in the supply chain, it becomes possible to achieve a material price improvement at the commodity input level, avoiding collusive mark-ups).

But even if there's nothing nefarious like collusion that shows up through such a data gathering effort, it's possible to better understand such areas as how a buying organization can best engage a supplier to maximize their equipment utilization and overall throughout (not to mention minimizing a supplier's cost structure, such as running a facility at off-peak hours in China to minimize electricity costs). Such an effort can yield rich areas of connection for supplier development efforts, such as the potential for buyers to understand the impact of supplier capital investment (or co-investment) to achieve potential incremental returns. It can also help show when suppliers might be sharing capacity with other buying organizations for a given line (and whether or not your organization is considered a "good" customer -- or not).

Stay tuned for further analysis and a final look at how BravoSolution is engaging customers to use tools to their advantage in the sourcing process, focusing as much on data collection as on market feedback and overall total cost analysis.

Jason Busch

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