Sourcing strategies focus on enterprise-wide processes, cross-functional teamwork and more aggressive use of technology, AberdeenGroup reports
Boston — April 14, 2006 — Companies are looking beyond supplier negotiations and price breaks by developing enterprise-wide sourcing processes and low-cost country sourcing strategies to reduce what they pay for direct materials, according to the results of a new AberdeenGroup survey.
Until recently, the strategies companies used to reduce those costs were simply negotiating with suppliers and mandating price concessions.
But the new survey data from Aberdeen, published in "The Direct Materials Sourcing Benchmark Report," indicate that developing an enterprise-wide sourcing process is the top priority for a direct materials sourcing strategy. The other top strategies are initiating or increasing low-cost country sourcing and establishing cross-functional teamwork.
"Our research found that leading companies, what Aberdeen calls best-in-class performers, have, on average, about 86 percent of their spend under management in a strategic sourcing process," says Sudy Bharadwaj, vice president of Aberdeen's Global Supply Management practice. "The industry average based on our survey data is 49 percent. Historically, for each dollar of spend under management, a company can save anywhere from 5 percent to 20 percent."
To achieve direct materials sourcing objectives, companies bring in sourcing teams much earlier in their product development processes and are planning to increase low-cost country sourcing, according to the survey findings.
Another interesting finding, according to the survey, is the acceptance (by more than 40 percent of respondents) of technology in aiding direct materials sourcing strategies. Over the next two years, the most popular technologies in which companies are investing are product lifecycle management (PLM). optimization-based analytics and Web-based negotiation or sourcing automation.
Some respondents report using technology developed in-house for such functions as spend analysis and supplier performance. But these technologies are being phased out in favor of commercial applications due to lack of scalability, as deployments become increasingly global.
A copy of the report is available at http://www.aberdeen.com/link/source.asp?cid=2862&pid=PR041006
Additional Articles of Interest
— Continued pressures to reduce costs and improve spending visibility and control are fueling a strategic sourcing revolution among midsize enterprises. Read more in "The Analyst Corner: Sourcing," in the February/March 2006 issue of Supply & Demand Chain Executive.
— Capturing the sourcing savings in a low-cost manufacturing strategy means weighing the risks and understanding total cost. Read more in "Supply Base Localization: A Different Look at Low-cost Country Sourcing," in the February/March 2006 issue of Supply & Demand Chain Executive.
Boston — April 14, 2006 — Companies are looking beyond supplier negotiations and price breaks by developing enterprise-wide sourcing processes and low-cost country sourcing strategies to reduce what they pay for direct materials, according to the results of a new AberdeenGroup survey.
Until recently, the strategies companies used to reduce those costs were simply negotiating with suppliers and mandating price concessions.
But the new survey data from Aberdeen, published in "The Direct Materials Sourcing Benchmark Report," indicate that developing an enterprise-wide sourcing process is the top priority for a direct materials sourcing strategy. The other top strategies are initiating or increasing low-cost country sourcing and establishing cross-functional teamwork.
"Our research found that leading companies, what Aberdeen calls best-in-class performers, have, on average, about 86 percent of their spend under management in a strategic sourcing process," says Sudy Bharadwaj, vice president of Aberdeen's Global Supply Management practice. "The industry average based on our survey data is 49 percent. Historically, for each dollar of spend under management, a company can save anywhere from 5 percent to 20 percent."
To achieve direct materials sourcing objectives, companies bring in sourcing teams much earlier in their product development processes and are planning to increase low-cost country sourcing, according to the survey findings.
Another interesting finding, according to the survey, is the acceptance (by more than 40 percent of respondents) of technology in aiding direct materials sourcing strategies. Over the next two years, the most popular technologies in which companies are investing are product lifecycle management (PLM). optimization-based analytics and Web-based negotiation or sourcing automation.
Some respondents report using technology developed in-house for such functions as spend analysis and supplier performance. But these technologies are being phased out in favor of commercial applications due to lack of scalability, as deployments become increasingly global.
A copy of the report is available at http://www.aberdeen.com/link/source.asp?cid=2862&pid=PR041006
Additional Articles of Interest
— Continued pressures to reduce costs and improve spending visibility and control are fueling a strategic sourcing revolution among midsize enterprises. Read more in "The Analyst Corner: Sourcing," in the February/March 2006 issue of Supply & Demand Chain Executive.
— Capturing the sourcing savings in a low-cost manufacturing strategy means weighing the risks and understanding total cost. Read more in "Supply Base Localization: A Different Look at Low-cost Country Sourcing," in the February/March 2006 issue of Supply & Demand Chain Executive.
- More research from AberdeenGroup.
