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


Organizationally each role within the SCM team should scale, as the primary functions of analytics, contract management and supplier management are not category-specific. Since the category expertise is being provided by the functional group (in this case, Human Resources), the SCM team should be able to move from category to category without missing a beat.

The only exception to this approach would be to optimize the interactions to assign a dedicated supplier relationship manager to each functional group. This approach will help to reduce the organizations reliance on “tribal” knowledge while allowing the core of the SCM group to act as a shared service across functions. The structure is efficient, but it also helps to maintain clear and open lines of communication between spend owners, Procurement and suppliers.

Obstacles to Successful Strategic Category Management

While this approach has some clear benefits, it is not without its challenges. Perhaps the most notable among these is talent management.

In speaking with spend management professionals across industries and continents, the division of labor is consistent. Buyers of indirect goods and services spend about 80 percent of their time selling and about 20 percent sourcing. Separate to the issue of whether or not it makes sense to ask the people to work so hard to do their jobs, this dynamic begs a very important question: why are we still hiring buyers?

An effective SCM approach requires spend management professionals to be proficient in analysis, relationship management and commercial savvy. This is very different from the set of skills possessed by the average strategic sourcing expert, and most companies are unlikely to be able to move from zero to a fully effective staff overnight.

However, it is important to remember that 20 years ago almost no one had the right staff to tackle strategic sourcing projects either. The legacy of strategic indirect procurement is one of either nonexistent functions or administrative order takers. The early days of strategic sourcing saw companies supplementing their staffs with consultants while they built the competency internally. The early days of SCM are likely to feature some of the same dynamics.

What’s important is that companies not avoid this element of building a productive SCM staff because, given the changes in the market, their only other option is to have a procurement organization that is unprepared to meet the challenges of the future.

Selling the “C’s”

CFO’s, to their credit, are single-minded. If a solution cannot be clearly quantified as a reduction in cost, then they will not count it as savings...nor should they. They have managed their organizations to this end, and procurement groups are measured on the delivery of implemented, hard dollar savings. There is no need to change this approach, but it is a necessary to get the CFO to recognize that there are more ways to skin the savings cat.

This dynamic speaks again to the importance of analysis and information management as a component of the SCM solution. It’s one thing for supplier development and functional stakeholders to identify “soft cost” improvements and administrative efficiencies; it’s quite another to be able to quantify the value of those improvements to make finance agree to count them as savings.

It goes without saying that some of the improvements identified and implemented by the SCM team will result in hard dollar savings. Since others will not, SCM professionals will need to have a firm grip on market conditions, benchmark sources and contributing factors to total cost of ownership in order to avoid missing the value of major non-piece-price savings.

Involvement with the C-suite has to go beyond convincing them to reconsider their approach to evaluating savings calculations; it also means showing them why it is important to have SCM involved in their planning and measurement cycles.

Today, in many instances, the functional leads plan, Procurement executes and the CFO measures. The system is inherently flawed because so much of the knowledge resident in the organization is not being applied to key aspects of the process. How, for example, can a CFO be expected to provide the function with a meaningful budget if she doesn’t know what cost reductions SCM might be able to provide?

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