The Analyst Corner: Sourcing

Continued pressures to reduce costs and improve spending visibility and control are fueling a strategic sourcing revolution among midsize enterprises


Improving access, quality and analysis of corporate spending With their initial sourcing improvement and automation initiatives maturing, and with supply markets tightening, best-in-class midsize enterprises are looking to improve their ability to aggregate, cleanse, classify and analyze spending data. Related Aberdeen benchmarks revealed that access to timely, accurate, complete and detailed spend data offers invaluable intelligence on spending patterns, compliance and performance ratings, inventory status, and part attributes. Such insight is critical for identifying hard-dollar savings opportunities and developing sourcing, budgeting, planning and product strategies.

Due to these factors, not only have best-in-class performers prioritized improving spend data accuracy and analysis, they will also utilize commercially available solutions and services to aggregate, classify and cleanse spend data for analysis.

Enlisting executive support for resources and policy changes Best-in-class performers cited garnering the support of top brass — particularly the chief financial officer (CFO) and senior vice president of supply chain — as the leading contributor to their success. Executive support is critical for securing the requisite budget and resources to augment staff and fund sourcing automation investments. Executive backing is also critical to drive mandates and policy changes to ensure business unit support and accountability for strategic sourcing and cost savings, as well as compliance goals and guidelines.

Leveraging of sourcing management automation All top performers utilize some form of sourcing management automation to accelerate and support their strategic sourcing improvement initiatives. More than 80 percent of this top-performing group has been using sourcing automation for more than a year. Best-in-class companies use sourcing automation to reinforce process standards, improve productivity, and increase negotiation and knowledge sharing capabilities. But what truly differentiates top-performers is their approach to sourcing automation:

  • Use of commercial sourcing solutions: Nearly all best-in-class firms use commercially available sourcing automation solutions. A number of industry norm and laggards use homegrown solutions that often have limited functionality (primarily data store and retrieval), lack scalability, security and audit trail capabilities, and are often custom-built for specific sites or groups.
  • Leveraging of dedicated hosting or shared hosting delivery models: 67 percent of best-in-class companies have deployed sourcing automation in either a dedicated hosting environment or a shared, multi-tenant ("on-demand") model. As mentioned earlier, shared, multi-tenant models offer flexible, usage-based pricing models that are more affordable and pose a lower deployment risk for midsize firms.

Enterprises employing these methods, structures and technologies outperformed their peers in every major category of sourcing performance and effectiveness. In fact, best-in-class performers apply strategic sourcing to more spending and derive four times greater cost and performance results with fewer resources than their peers (Figure 3).

Figure 3: Strategic Sourcing Performance Gap Among Midsize Enterprises

Sidebar: Strategic Sourcing Defined

Strategic sourcing essentially is the process of identifying, evaluating, negotiating and configuring the optimal mix of products, suppliers and services to support supply chain and other business objectives at the lowest total cost. While there are a number of approaches to strategic sourcing, the primary goals are similar.

  • Select the combination of products, services and suppliers that offers the lowest total cost solution. Total cost is the sum of multiple price and non-price factors, such as quality, delivery and warranty terms. Modeling and understanding the total cost of a supplier bid, product or program is fundamental to effective sourcing.
  • Ensure sourcing decisions support supply chain and business objectives. Sourcing strategies must be aligned with supply chain and business initiatives to ensure sufficient supply to support requirements and optimize cost and performance.
  • Enhance and institutionalize knowledge and proven sourcing methodologies across the enterprise. To be successful, a strategic sourcing program must incorporate standard procedures and metrics. It must also provide an environment that fosters continuous improvement.

About the Author: Tim Minahan, chief services officer at Aberdeen Group, provides analysis and assessment of software and services that automate and streamline procurement, sourcing, design, and supply chain management operations.

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