The Strategic Sourcing Category

Strategic Sourcing and E-Sourcing: Level 1 [Plus+]

Strategic sourcing does not just involve a five- or seven-step flowchart. Nor is it just a “leave behind” by consultants once they’ve helped your organization to identify savings. Rather, strategic sourcing is a process that maximizes the value of each purchase made by a company — at least in theory! And it’s one that, in our opinion, requires the support of a solid technology solution that in turn must support each step of the process.

Strategic sourcing does not come in a one flavor. In fact, in the introduction to this series, we suggested there are six different approaches to strategic sourcing. Starting with the foundation (Level 1) today, this multi-part research brief will delve into the six approaches to strategic sourcing and the requirements, technologies and checklists required to pursue sourcing on the right foot.

Graphically, a Level 1 sourcing platform may look something like this: As one can see from the above diagram, there are four primary requirements for a solution to support e-negotiation. Such a product may contain more capabilities, but it will generally contain at least these four (although very basic platforms, especially those embedded in suite-driven platforms, may not support the full extent of reverse auction capability). In this article, we will discuss each of these four core requirements and some of the key features that define them.

Ready, set, source!

Strategic Sourcing and E-Sourcing Defined and Explained: A Preamble

What the heck is strategic sourcing? As with most things in life (and business), it depends on whom you ask.

One cynical definition might suggest it was an initial set of activities to make purchasing become more strategic without having to more broadly embed the function within the business — or at least sound more strategic. Another cynical lens might suggest that the terming of the phrase was a ruse by consultancies to prove they could identify savings (and of course leave behind a “process” to further justify their fees).

Yet we won’t just start the New Year with our cynical cap on. Strategic sourcing really does have multiple definitions.

Deloitte’s Global Sourcing Insights (GSI) — From Best Shoring to Best Sourcing [PRO]

In Part 1 of this analysis, we discussed the need for a truly strategic supply chain sourcing platform built on a supply network design model rather than just the typical BOM-based sourcing workflows and low-level commodity sourcing efforts that use “empty” e-RFX tools. We detailed the full requirements for such a supply network-based platform in a four-part series (see related articles below), but in Part 4, one of the trends highlighted included a pivot from such empty apps to content-enabled apps increasingly provided by large service providers that use cloud-based analytics and intelligence platforms as a way to deliver continuous insight and value. In that piece, we highlighted Deloitte’s Global Sourcing Insights (GSI) solution as a prime example:

GSI is a strategic sourcing and extended supply network design workbench that allows clients to explore high-level sourcing strategies by uploading their supply network configuration and then performing what-if and predictive scenarios in the tool that is pre-integrated with regional and country-specific cost and risk data. It is truly the harbinger of things to come with consulting organizations that need to survive and thrive by productizing their IP.

Many organizations strive to perform “best shoring” to optimally determine what regions to source from. Deloitte’s GSI solution is the only solution I have ever seen that is so well suited to best shoring, especially in a retail-oriented supply chain. It not only helps optimize the regions that you shore (source) from but also drives down to the cost elements and sub-regions that help you tailor their supplier-level sourcing execution activities that perform cost, risk and capability discovery and then subsequent “risk-adjusted cost” analysis against a “benchmark supply chain” of your peers (and if you load up your own manufacturing plants as suppliers, you can also do make vs. buy analysis).

Phew, that’s a mouthful!

Since the platform is pre-loaded with all sorts of external content and benchmarking data on costs, spend and risk, you can test whether the supply chain that you’ve built over the years still holds untapped opportunities. It basically is like a risk-adjusted should-cost analysis in a box. That’s why it’s more of a “best sourcing” tool than a simple “best shoring” analysis. We spend a lot of time go through it and the bottom line is that it’s pretty badass — and that it has some implications far beyond the consulting ecosystem and how it’ll impact firms that sell app suites, niche apps, analytics, market intelligence (apps/services), “networks”, BPO and the like.

In this Spend Matters PRO analysis, we’ll look under the covers at an offering we feel is on the vanguard of an emerging solution model in sourcing and supply chain. If you are a practitioner who subscribes to Spend Matters Plus and are interested in this content, please drop us a line and we’ll send you a copy.

Getting a Grip on Category Management (Part 1): A History Lesson [Plus+]

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Category management is broader than strategic sourcing. For example, while strategic sourcing has been a useful methodology for procurement to proactively rationalize the supply base in recurring spend categories, the traditional strategic sourcing methodology has had a strong bias toward purchase price reduction to meet savings goals, because despite all of the talk about the importance of sustainability and supplier development, procurement is still predominantly measured on purchased cost savings rather than a truly balanced scorecard of supply that optimizes the total value of the purchase. As a result, chaining category management to traditional strategic sourcing shrinks its scope to within the sourcing silo and limits its ability as a methodology for broader organizational value creation. The goal of this series is to explain what category management is, how to best go about it, how it intersects with strategic sourcing and how it can be used to take an organization's sourcing efforts to the next level.

Hot Off the Press: Looking Back at Strategic Sourcing to Project the Future of E-Sourcing

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Brand new hot-off-the-press research is now available from the Spend Matters team! Jason Busch, founder and managing director, and Thomas Kase, vice president of research, present The Past and Future of Strategic Sourcing – Looking Back to Look Forward at E-Sourcing. What does the future hold for strategic sourcing? Have we reached the full value potential for this segment or are there even more savings to be had? Get the full story here!

Maersk E-Sourcing Efforts Lauded by The Wall Street Journal

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Anyone who has met Jacob Gorm Larsen, Maersk Group’s global e-sourcing manager, knows he is passionate about sourcing and market design. In many ways, he is the heir to some of the best thinkers that I worked with at FreeMarkets 15 years ago, who pioneered the concept of online auctions for sourcing with different price discovery and feedback mechanisms – nearly all of which are par for the strategic sourcing course today. Jacob deserves to be recognized. But it’s good to see his efforts acknowledged outside of just the procurement world itself. Earlier this summer, The Wall Street Journal covered what Jacob and his team were up to at A.P. Møller-Maersk.

Anti-Dumping Effort Gains Attention (and Spend Matters Network Weighs In)

Rep. Billy Long is pushing federal authorities to take a closer look at the goods global suppliers are shipping to the US. And, the world’s largest bedspring supplier, Leggett & Platt, is throwing its weight behind the effort – going as far as to hire a lobbying firm to convince lawmakers this is an important issue that needs to be addressed.

Strategic Sourcing and Driving Spending with Small Businesses Don’t Have to be in Conflict

Regardless of whether it’s public or private sector, I would argue that the basics of strategic sourcing (i.e., aggregate and consolidate spending with fewer suppliers to create leverage in negotiations and more strategic relationships overall) are in conflict with the drive to encourage supplier diversity. But they don’t have to be. Here’s why: strategic sourcing does not only have to focus on demand aggregation and sourcing strategies based on driving down price with tier one suppliers.

Professional Services in Strategic Sourcing, Solution Selection and Deployment (Part 2) [Plus+]

Where do professional services add value in the sourcing process? This is a good question – and probably one that you are more or less forced to address as you build an end-to-end business case prior to acquiring a strategic sourcing solution. There are many areas where services can add considerable value to any solution – before and during the implementation, through early stages where core leadership is required, and in broader and deeper deployments both domestically and globally. In Part 1 of this two-part series on Spend Matters Plus, analyst Thomas Kase covered what you should know and do before and during the implementation. Today's Part 2 covers post-implementation and provides main takeaways.

Professional Services in Strategic Sourcing, Solution Selection, and Deployment (Part 1) [Plus+]

Where do professional services add value in the sourcing process? This is a good question – and probably one that you are more or less forced to address as you build an end-to-end business case prior to acquiring a strategic sourcing solution. There are many areas where services can add considerable value to any solution – before and during the implementation, through early stages where core leadership is required, and in broader and deeper deployments both domestically and globally. Services are critical to sourcing success – either you handle them yourself or you get a provider to help. In this Part 1 of a two-part Spend Matters Plus series, analyst Thomas Kase shares best practices for before and during an implementation. Part 2 will cover post-implementation and main takeaways.

Exploring the Evolution of IT and Strategic Sourcing (Part 2)

In the first of this two-part series, I briefly traced the evolution of IT strategic sourcing requirements, courtesy of a Data Center Dynamics column discussing an IT perspective on the evolution of procurement priorities and requirements. Today, we come to some of the specific requirements that IT sourcing programs have, including the need to focus on the full lifecycle of a supplier engagement to monitor and track savings. These include monitoring metering, charge-backs, and other areas.

Exploring the Evolution of IT and Strategic Sourcing (Part 1)

When I first read about strategic sourcing in Forrester, IDC, and Gartner reports back in 1999, I thought the analysts had no clue what procurement was. But then I realized that they were specifically referring to another IT-centric definition of strategic sourcing, rather than one focused on broader procurement, finance, and supply chain. I came across a more recent article in Data Center Dynamics.