Four enablers that must be addressed to ensure a successful roll-out and savings over the lifetime of your company's strategic sourcing project
In today's competitive marketplace, most mid-sized and large corporations across all industries are executing strategic sourcing initiatives to lower operational costs and improve profit margins. In addition to improving cost efficiencies, strategic sourcing provides an opportunity to foster stronger relationships with vendors throughout the supply chain. Many have used sophisticated e-sourcing tools to conduct strategic sourcing activities such as online reverse auctions. Some have adopted tools permanently by subscribing to an e-sourcing application service provider (ASP) or even creating their own homegrown systems.
But making strategic sourcing work in the long-run is still a challenge for many organizations. To sustain hard-dollar savings and continue to deliver results, companies must treat strategic sourcing as more than a one-time effort. Whether you are already managing a strategic sourcing initiative or just starting out, the following four enablers must be properly addressed to ensure a successful roll-out and prevent savings from being short-lived.
1) Organization — Center-Led Versus Centralized?
Strategic sourcing inevitably brings change, and change is often resisted by users of any newly acquired process. Cross-functional sourcing teams, when used, are often short-lived. When the sourcing project is "over" and the team is dissolved, processes often go back to the "old ways" of conducting business.
What is needed — beyond the cross-functional team — is a sustainable, long-term procurement organization sponsored at the executive level, where authority, roles, responsibilities and individual performance metrics are clearly defined. Stakeholders must buy into the organization and be aligned along common objectives. Ideally, this organization is in place at the beginning of the strategic sourcing initiative and its structure supports continuous improvement.
Should a procurement organization be centralized? Not necessarily. Some spend categories are quite specific and category owners should reside within their areas or business units. A "Center-Led" — as opposed to "Centralized" — procurement model is what many companies have put in place as a successful model. If the current procurement organization (if there is one to start with) does not or cannot support the sustainability of results, it probably makes more sense to delay strategic sourcing and address the organizational deficiencies first.
2) Skills — Continuous Improvement
Many companies seek help from external resources when launching strategic sourcing initiatives; it becomes crucial that knowledge is transferred to the organization's procurement staff. But that is not always the case. Procurement individuals' skill sets should be sufficient so that they themselves can lead and manage future sourcing initiatives — from analyzing spend to developing request for proposals to negotiating contracts or managing a spend category. Contracts will expire; products, services and the supply base will certainly change over time.
Strategic sourcing is a continuous process not a one-time event. Sourcing professionals must develop and maintain proficiency in all aspects of the sourcing cycle. Organizations need to identify the knowledge and the skill sets of their procurement staff and develop the specific training plans to close any knowledge gaps.
3) Processes & Technology
If long-term savings from strategic sourcing are to be sustained, it is critical that the appropriate procurement processes and tools be in place. The "if you build it, they will come" model only works if and when what is "built" is communicated, accessible, easy to use and does not disrupt existing operations. If a new supplier's products and services are not easy to procure and/or use, there will be limited compliance, regardless of the potential cost savings associated with better pricing.