The Sexy Side of Strategic Sourcing: Complex Categories

Spend Matters welcomes a battle of the bands guest post from Timothy Yoo, Principal at Archstone Consulting (rebutting Mike Fuller's claims from last week).

I read last week's guest post by Mike Fuller Ain't No Half-Steppin": Why You Should Still Be Focusing on SRM, and I'm sorry to say, Mike, but I completely disagree with you. Rod Stewart's song and video 'Da Ya Think I'm Sexy' is NOT sexy. I've always been partial to Marvin Gaye myself, and when given the opportunity to source a complex category I find myself exclaiming "Let's Get It On!"

The "2011 Hackett Procurement Key Issues Study" recently highlighted that procurement departments continue to be asked to do more with less, meaning that savings targets are becoming even more aggressive despite decreases in both operating budgets and headcount. The only solution is to become more effective, and focus resources on areas with the largest ROI. While by definition Complex Categories won't be a walk in the park, they could be the answer to a CPO's prayers, since they often have large amounts of uninfluenced and under-managed spend -- with double digit savings potential.

What would you consider a complex category? For starters, we're not talking about commoditized products and services with easily defined specifications like office supplies, packaging, or simple services like temp labor. Complex categories are often very political, generally considered "strategic" by the organization. They often have imprecise or changing specifications and requirements, and are frequently areas where true 'apples to apples' comparisons are difficult or impossible. Many of these challenging categories, however, have become targets for strategic sourcing due to increased budget pressures across organizations. Procurement isn't the only department being asked to do more with less. Some of the most common complex categories are management consulting services, creative agencies and marketing, legal, market research, business intelligence, and maintenance, repair, and operations (MRO).

So what do you need to remember when approaching complex categories?

  1. Category Expertise is Critical - Some argue that procurement focuses on creating a rigorous sourcing process and the stakeholder brings the category expertise. But for complex categories this just isn't enough.

    • Category expertise gives you credibility with your stakeholders
    • You'll need to understand the unique aspects of the category including multiple cost drivers, non-commodity pricing, hidden costs, etc.
  2. Over Communicate -- Spend more time on stakeholder involvement with a focus on change management.
    • Include key stakeholders in the decision process and have visible high-level support
    • Communicate objectives, requirements, and progress regularly
  3. Collaborate - Involve the suppliers early and often.
    • Maintain perception of a competent and fair process with high-level, strategic relationship suppliers
    • Hold pre-RFP meetings to ensure all supplier activities are incorporated in the bid and to allow other users to become familiar with available capabilities
  4. Allocate Additional Time -- More time will be required for a thorough TCO analysis; review results (not calculations) with suppliers where prudent
    • Focus on risks less common in traditional sourcing (e.g., supply continuity, disaster recovery)
    • Designate a final decision-making body; empower with the authority to enforce its decisions
    • Expect a higher percentage of savings from process and demand management
    • Implement a supplier performance tracking program to sustain savings

Now more than ever, internal and external factors are creating opportunities for Procurement to begin sourcing the complex category 'sacred cows'. If you haven't done so yet, it's time to talk to your stakeholders. And if all this hasn't motivated you, I'll close with more wisdom from Marvin Gaye: So c'mon, c'mon, c'mon, c'mon, c'mon, baby...Let's get it on...

- Timothy Yoo, Principal, Archstone Consulting

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