Sourcing Prediction: Why the Future of Spend Management Won't Include Its Most Familiar Component

The process that commoditized nearly every spend category it touched has itself become a commodity


The continuing need to save will not be solved by strategic sourcing negotiations, particularly within more advanced sourcing organizations that have spent the last 15-20 years repeatedly sourcing these categories. The successful spend managers of the future will be thinking in terms of partnerships – real, productive and lasting relationships with suppliers that create substantive value for buying organizations.

The good news is that no one really wants to switch suppliers anyway. The challenges of internal stakeholder alignment, implementation, systems integration and contract compliance are each exacerbated by a move to a new supplier. While players on both sides of the equation say that they want these types of relationships, can both buyers and sellers do their part to ensure that real partnerships are established and maintained?

While there exists any number of alignment, reporting, and value creation issues that will have to be discussed in more detail, the key elements to successful partnerships are easy to identify. The buying organization must:

• Eliminate the constant threat of being “bid out”;
• Invest the appropriate time and personnel in managing the relationship;
• Implement and track supplier recommendations for total cost of ownership improvements;
• Develop ways to quantify and report total value savings.

The selling organization must:

• Be forthcoming with aggressive pricing and market-leading terms;
• Invest the appropriate time and personnel in managing the relationship;
• Make viable and impactful recommendations to support continuous improvements;
• Adapt to customer requirements for benchmarks.

Being easy to identity and being easy implement and execute against are two distinctly different things. The strict examination of business fit will be complemented by a keen focus on cultural fit. Organizational readiness to adopt a partnership approach must be recognized early in the process if an approach of this nature is going to work. Even in a “trust but verify” environment, trust is half of the equation. A company that is not prepared to have this type of relationship is not going to be successful in employing this approach.

Those organizations that are prepared to take this step have an unprecedented opportunity; the potential to dramatically impact their bottom lines with the support of their internal stakeholders and without risking the functionality of their indirect supply chain.

Showing a United Front

In the vast majority of companies, procurement doesn’t “own” any spend categories. The era of strategic sourcing gave spend management professionals more visibility, more influence and, in some cases, actual control over a handful of spends. With that said, decision power over how to handle most indirect categories has been retained by Human Resources, IT, Marketing, Facilities, Finance and the other functional groups within companies that manage these spends.

This dynamic has long been a source of friction and counter-productivity for companies both large and small. In rare situations, when strategic sourcing initiatives have been forced on these functional groups from leadership, the resulting dynamic was one of distrust between the function and procurement. Grassroots efforts by Procurement to create internal relationships with stakeholders take a long time to gain traction and require a commercial approach that most purchasing departments do not possess the skills to apply.

Most of the disagreements between the groups stem from a common set of conceptions; the functions think that Procurement will accept the lowest-cost solution regardless of service and quality requirements, while Procurement believes the function will ignore cost and risk management to maintain relationships with incumbents.

While both of these positions are unfair generalizations, they are based on truths. Suppliers are not ignorant to these dynamics, and they have historically used this fundamental disagreement as a point of leverage in their own dealings with customers. A refined approach to sourcing, with partnership as a base, will allow the functions and Procurement to align their objectives and show their suppliers a united front.

Creating a Reliable Supply Chain

As the volatility of global supply markets continues to increase, it is more important than ever that procurement professionals become risk management professionals. Having a good deal is important; having a reliable deal is even more important.

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