Advanced Sourcing: Of Market Gods and Sourcing Ministry…

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Effective commodity management often requires an entirely new approach to thinking and engaging suppliers. Yet it's something that procurement organizations across the discrete manufacturing, food, CPG and energy markets must increasingly master if they're to deliver the type of value that management teams are expecting. In contrast, successfully reducing maverick buying and improving spend compliance, while valuable, represents a fraction of the type of potential savings and risk exposure that focusing on the direct supply chain through commodity management programs can have.

Why do complex sourcing projects – and procurement transformation programs – tend to come up short when it comes to forecast savings compared with actual, realized results? There are really two top reasons, often having very little to do (at first glance) with technology:

  1. Poor change management
  2. Insufficient skills (including talent mismatch and misalignment at multiple levels of the organization)

Procurement organizations often fail to engage stakeholders effectively (note to procurement and finance leaders: simply yanking budget away from stakeholders is not the same as engagement, at least not alone). When they do not quantify what they’re after from a given supply relationship and how that relationship impacts other outcomes (e.g., sales), they have a difficult time implementing the results of programs. But engagement and alignment of desires, requirements and outcomes (ideally as early as possible) is an absolutely essential component of change management.

Next, this brings us to insufficient skills in procurement. One of the most direct culprits for a lack of alignment and effective change management is the lack of right skills even within a centralized procurement function to drive change in the business – not just in a category. Outside talent can help here, but so too can bringing in talent from within the business and creating a set of shared power-user resources whose expertise is sourcing and market design, which in turn can enable category leaders to be experts at engaging the business and suppliers (rather than having to worry about the mechanics of a negotiation).

This brings us to technology, and specifically, how advanced sourcing can help. In fact, if you’ve followed this series so far, you’ll already know that the types of technology that change the way we go about pursuing a particular supply chain and business outcome – not just a specific event or negotiation – can have a huge impact on the ability to engage stakeholders.

It also explains why advanced sourcing approaches that are most successful on a first-time basis almost inevitably require third-party expertise to pull off (unless a procurement organization is already “up-skilled” enough with truly expert resources in both the market design and stakeholder/supplier engagement areas).  One way to think about it is that the market designer is essentially playing the role of a sourcing god. The stakeholder/supplier engagement lead is the priest, minister, rabbi or shaman who preaches much to the flock and gets them on-board – and also to hear their procurement sins, but that’s a topic for another time.

In other words, there are very few companies with both center-of-excellence strategic sourcing gods and members of the category management ministry in the procurement ranks at the same time – at least not usually when such advanced sourcing techniques are applied for this first time. This is why solution providers like BravoSolution, CombineNet and Iasta have a history of supporting their advanced sourcing tools with significant services for those that need to get some afterlife religion and sourcing spiritual guidance to prepare them for the journey. It’s also why Emptoris (with Deloitte, among others) and Trade Extensions (with AT Kearney) offer a truly full service approach as well.

As companies become more familiar with both roles of market design and stakeholder (and supplier!) influence/engagement, they can begin to take over the advanced sourcing reins themselves. But along the way, they must absorb by both osmosis and transplantation the necessary change management expertise and raw talent necessary to pull off and structure complex sourcing projects that can disrupt the overall supply chain, from customers to lower-tier suppliers and everyone in between.

Sound easy? Of course it’s not. But in certain cases, such an approach is not only ideal, it’s essential. In the final installment of this series, we’ll explore one case in particular that calls attention to the true necessity of advanced sourcing.

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