In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.
My point? To improve category management, which we sometimes affectionately refer to as CatMan, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game.
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.
An n-step chevron process is a siloed procurement-centered sourcing methodology geared towards supplier rationalization. It’s a fine start for procurement hitting cost savings goals, but it’s not a great way to align to the broader organization as procurement evolves. So, we’re proposing DMAIC as an emerging, superior approach, but it’s far beyond the DMAIC that you usually think of. The n-step sourcing process has had a good run, but let’s not try to make it do unholy things. Read on to see how other companies have used DMAIC.
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.
In our first article, we noted that sometimes good RFP responses are hard to come by. We noted that there are a variety of reasons why this is the case and tried to give some insights on what makes a good RFP. Then, in Part 2 of this series, we defined some critical requirements of a good RFP in an effort to help you write better RFPs. Finally, in Part 3, we discussed how to understand and incorporate the supplier’s perspective into your RFP so that you can be a “prospective customer of choice” by presenting an “RFP of choice” that makes your business even more attractive to the prospective supplier. To do that, let’s dive into some details on the best practices needed for creating one.
In our last article we noted that too often good RFP responses are hard to come by. If you want a good response, your odds will greatly improve if you have a good RFP. We also gave you some hints as to what makes a good RFP. In this article we define some more requirements of a good RFP to help you write better RFPs.
As a buyer, you send out dozens, if not hundreds, of RFPs every year, and whether it is for a simple operating system upgrade for the local office or a complex global print project that involves 100 different countries and nine digits of spend, you need good responses to make a good decision and a good award. But sometimes good responses are hard to come by. Why? Sometimes the market is against you because the value of your dollar is falling, demand exceeds supply or your competition has launched a smear campaign against your brand. Sometimes the best suppliers have no capacity and you are relegated to picking the best option from the alternate backup providers. And sometimes your RFP just isn’t very good. You heard us. Sometimes your RFP isn’t very good. And if your RFP isn’t very good, how can you possibly expect to get good responses? Unless you tell them, the suppliers’ personnel don’t know your business, your challenges, your goals, your needs and what makes a good response and what doesn’t. Unless you reach out to them, they don’t even know how serious you are about considering any proposal they put forward. How do they know you aren’t just using them as “RFP fodder” and merely collecting their bids to use against your incumbent that you plan to award to anyway?
Direct materials sourcing refers to the sourcing of custom manufactured goods, and of course, raw materials from first tier suppliers that meet the particular needs of the buying organization. It is distinct from the sourcing of commodity goods and services in that the nature of the requirements are considerably more detailed than the requirements for consumables or low-value goods. If all you are buying is toner cartridges for the laser printers, cleaning suppliers for maintenance or commodity packaged goods to round out the low end of a product line, any compatible toner cartridge, cleaning detergent or aftermarket good will cut the mustard. But if the organization is buying components for a high-end laptop, looking for custom molded manifolds or building engines, the goods have to be precise. Sourcing these goods is considerably more complex than sourcing toner cartridges and detergents.
Even though it will annoy a lot of vendors, I’m going to say it: Source-to-pay (S2P) suites may be here to stay, but top performing procurement organizations continue to select and use multiple sourcing technologies for different purposes — and they will also pay a premium for specific needs. This Spend Matters PRO brief breaks down the different categories of e-sourcing tools that companies are buying, lists specific vendors in each category, provides pricing ranges for various types of solutions and makes recommendations on how best to use different solution types — and where.