At the "Advanced" or "Level 3" maturity phase for lean sourcing, we see a mild transformation take place in the resident skills of procurement and supply chain. Often times at this level, they become somewhat interchangeable given the quantitative and analytical focus of both separate functions in driving continued cost out of the equation. At this level, organizations often place an emphasis on hiring former sourcing and operational consultants with an experience in data-driven initiatives. On the supply chain side, initiatives may include expanded integration programs with suppliers to support demand management. Or they may include programs designed to reduce produce complexity, drive part standardization and rationalize various SKUs.
But perhaps as important, Level 3 maturity programs are marked by why they achieve -- synchronized processes, reduced risk, reduced inventory and greater, forward-looking visibility into the supply chain and supply risk. At this stage of maturity, we all tend to see a pull-driven approach to the majority of products, and, depending on industry, tighter integration of sales and operations planning (S&OP) with overall procurement and lean initiatives. And it goes without saying that joint product design initiatives and collaborative cost take out programs -- between multiple internal constituents as well as suppliers -- become much more familiar and common at Level 3 maturity from an operational perspective.
When it comes to sourcing, the largest change we often observe at Level 3 is a movement to consider programs on a company-wide basis rather than in decentralized silos or the occasional centralized, one-off demand aggregation initiative. Decentralized procurement is likely to still thrive in this environment, but the key is allowing centralized structure, rigor, insight and intelligence to complement the decentralized execution nodes that remain essential to operations. At the same time, we often see the use of sourcing technology change dramatically at Level 3 and a movement away from reverse auctions for all but commodity, catalog and indirect spend (and not even in these cases, much of the time). Rather, we observe the adoption of both purpose-built (i.e., category specific) and optimization-based approaches (see links at the end of this post) that fully consider price and non-price factors, as well as supplier recommended alternatives specifications and terms.
Done right, this can lead to a much more effective means of managing the total cost of ownership of a given global supply relationship. Yet companies don't achieve Level 3 lean sourcing status overnight. If you're keen to understand the tools that can help get you there, we would encourage you to download our latest Compass and Perspectives research on the subject: