By Carolyn Beal, Director, Procurement Solution Marketing, SAP
It should come as no surprise that the top priority of procurement Executives is to deliver cost savings. This is the key metric against which Chief Procurement Officers (CPOs) and their staff are measured. According to a 2011 report by Ardent Partners “CPO Rising”, top procurement priorities over the next three years are led by a focus on savings, followed by processes, people, and then suppliers.
To effectively sustain savings and achieve sourcing excellence, a procurement organization has to keep track of numerous moving pieces. Sourcing teams must be able to develop and manage internal relationships, negotiate prices and contract terms with suppliers, while monitoring numerous spend categories to understand the latest material and service pricing trends. There’s a lot to know, orchestrate, and keep track of in order to succeed.
How can your team bypass common pitfalls to achieve sourcing excellence? Follow these five guidelines to start generating savings.
- Obtain Executive sponsorship – Center-led mandates from executives work wonders to gain internal support for sourcing strategies and policies. Without these, it can be an uphill battle for the sourcing team to ensure that policies are enforced and preferred technology processes are utilized. The Executive sponsor also acts as a conduit to the Executive management team and to the Board to highlight the sourcing team’s achievements.
- Collaborate with your key stakeholders – Meeting stringent savings goals is not something a sourcing professional can do on their own, and collaboration within the organization and with suppliers is essential. Organizations have seen success by embedding sourcing professionals within a business unit to really understand the needs surrounding that area. By doing so, a level of trust and understanding is built where the sourcing team is viewed as a valuable strategic partner. Similar approaches can be taken with your suppliers. Identify your top-tier, strategic suppliers and schedule periodic review meetings where you discuss the current state of the business and then plan on how to effectively work together in the future. You might be surprised at the ideas suppliers could have on how to drive efficiencies, leveraging an “outside/in” perspective.
- Automate processes – Wherever possible, automate. Even if you have already invested in a sourcing technology, examine what processes could be optimized further via automation. Shy away from doing the bulk of the work in Microsoft Excel spreadsheets and then uploading them into the sourcing system, rather than capturing all process steps within the tool. By structuring supplier questionnaires objectively within the sourcing technology, you increase the viability of automated supplier scoring to award business. For those not leveraging sourcing technology, manually-driven, sourcing events such as Requests for Proposal can be painful, taking months to execute using offline measures. This approach risks missing important compliance measures by not having a single version of truth for your sourcing data.
- Become better informed – Centralize all of the information you need to effectively perform your job – such as to-do’s, events, reports, and approvals. Imagine getting the necessary answers for your sourcing decisions right at your fingertips. This approach not only adds to process efficiency, but also ensures that you always know what is happening in the areas that you manage, from a supplier, expenditure, and category perspective.
- Take a category-driven approach to sourcing – Once you have the executive buy-in, key groups, and processes in place, plus access to the right information, it is time to march forward and start to source for savings. By now, most organizations have already segmented out their “low-hanging fruit” spend categories and generated savings. It is time to scrutinize a second layer of categories to leverage for sourcing activities. Examine market information, such as category cost drivers and commodity pricing, and supplier financial information to unearth the categories that will drive further cost savings.
It takes some initiative, coordination, and buy-in from your organization to achieve this approach. But, the effort is worth the savings added to the bottom-line. By leveraging these guidelines, you will be able to work smarter and source better.