Direct Procurement: Improving Procurement’s Quality of Influence in the Supply Chain

If Supply Chain Management is about managing the chain (or “network”) of supply, and if such supplies increasingly outsourced, then it makes sense that someone in the organization takes responsibility for maximizing the performance of such external supply (for more on this topic of “Supply Performance Management,” see here and here). Who should do this? Well, nearly everyone reading this would say that it should be procurement, especially since direct procurement groups tend to report into the supply chain organization (whether centralized or decentralized). But, this is not always the case. In fact, as I wrote about previously, direct procurement groups may have a high quantity of influence (i.e., % of spend where procurement is involved during the sourcing process), but not a high quality of influence in terms of earliness of involvement as well as the depth by which procurements drives the adoption of  best practices into the inbound supply chain.

In the study* that we are currently conducting alongside the Institute for Supply Management (ISM) on this topic of direct procurement excellence, we studied this issue, and the early data is very interesting. The study is open until Friday, August 23. In the study, we asked this level of influence (i.e., ad hoc vs. participating/enabling vs. leading/transforming vs. accountably owning with resources) across the following areas below:

  • Design / Specification creation
  • Supplier discovery and Early Supplier Involvement in NPDI
  • Sourcing beyond BOM-based sourcing execution (e.g., multi-tier sourcing scenarios)
  • Supplier ramp-up / onboarding
  • Advanced Supply Planning (tied into business/profit planning)
  • Inventory positioning (including multi-tier)
  • Strategic 3rd party management (e.g., CMs, ODMs, 3PLs, BPOs, etc.)
  • Overall Supplier management for all supplier segments
  • Commodity Risk Management
  • Tax advantaged supply chain design
  • Supply Risk Management
  • Extending GRC/Sustainability requirements to supply base
  • 3rd Party innovation beyond NPDI
  • PO planning, allocating, and monitoring (including multi-tier)

This list is by no means exhaustive – e.g., consider the area of transportation procurement where “the business process is the spend category”(I’ll do another post on this later). In some follow up Plus and PRO pieces, I will share some of study insights, as well as best practices, case studies and supporting tools / vendors. But, it goes without saying that these business process areas are much broader than the typical BOM-based sourcing execution process and the upstream strategic sourcing projects that create the approved/preferred suppliers. In the supply chain, the n-step “one and done” drive-by sourcing event doesn’t cut it, nor does a single-tier order sequencing/releasing/expediting process done by a buyer-planner.  A much deeper and holistic approach is required.

Unfortunately, the tools and services that litter this landscape are very fragmented, and I’ve personally been disappointed by the lack of innovation to-date in this broader landscape (I’ll cover this in later posts) over the last decade, although some newer direct procurement providers are breathing some new life into the area. But, it is not really the fault of the providers in the sense that they are merely responding to practitioners who are trying to solve relatively narrow and focused problems. However, as these are solved individually, the more advanced firms are beginning to look for better automation across these domains (e.g., what is the time-phased impact of forecasted price increases on profit margins for various product lines that use a certain commodity like resin, aluminum, etc.?). We will be spending a fair amount of time laying out these evolving end-to-end process areas and the value or crossing the chasm by crossing the silos. For the practitioners and providers alike who want to take a leadership position, understanding this “art (and science) of the possible” is critical to find the next level of value to deliver.

*It is a practitioner study, so for any providers who are interested in accessing it (e.g., to send to their clients), just send me an e-mail (pierre@spendmatters.com) and I’ll send it to you (so I don’t need to clean out the garbage data later).

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