The Sourcing Innovation Series: Part X

I know it’s been a few days, but as I said in my last post, it wasn’t over … just delayed a little while my fellow bloggers enjoyed the long weekend and collected their thoughts. Over the last couple of days, Charles Dominick posted Sourcing Innovation for Enterprise-Wide Contracts, his second post on the future of sourcing, and Jason Busch posted Evaluating Spend Visibility and Analytics Providers. Now, I know Jason’s post wasn’t explicitly a post on the future of sourcing, but it is on spend management innovation, and the future of sourcing is all about innovation.

Charles pointed out that the sourcing world is ready to go to another level. In the not too-distant future, we’re going to look back at today’s supplier selection methodology and consider it archaic. Today we use TCO analyses or weighted average supplier scorecards, but these are problematic in that each internal customer or commodity team will not only value different criteria variably but assign different subjective values to the same qualitative criteria.

In the future, Charles expects speculative bickering to be replaced by the widespread watching of simulations of various scenarios associated with the various supplier selection opportunities. The sourcing team will see the risks and the impact on the buying organization if those risks come to fruition. I think Charles in on to something here. While I do not foresee simulation replacing decision optimization for award allocations, for reasons that I will discuss in an upcoming red paper from Iasta that I am co-authoring, it is a great technology for risk evaluation, identification, and mitigation as you can not only simulate the effect of a disruption but the effect of a risk mitigation strategy. This gives you a more comprehensive, tangible understanding of the factors that should influence your decision.

The net effect is that in the future a procurement professional will need to be even more skilled and educated then today as you will have to be smarter than the simulator, and understand what factors the simulation considers and know how to evaluate those factors to arrive at an optimal decision. According to Charles, some of the skills a purchaser will require in addition to their current skill set are:

  • Skills in quantitative analysis, with an understanding of statistical probabilities, decision trees, etc.
  • Knowledge of macro- and micro-economics
  • The analytical ability to quantify the total cost of the supplier relationship, not just the total cost of ownership

In addition, a procurement professional will need a better understanding of decision optimization, the underlying technologies, and where simulation ends and optimization begins. Not an easy task, but this is why procurement is going to become the center of tomorrow’s organization.

Jason focused on spend visibility, noted that your spend management approaches need to become more sophisticated, indicated that your solution providers need to focus on content integration, vision, and integration, and that in a few years time leading procurement organizations will think about spend visibility, supplier performance, and supplier risk management as a single implementation.

With respect to content integration, Jason states that auto-classification and cleansing tools will never be sufficient on their own, since examining the supplier master is just a start. You also need to be concerned with supplier credentialing, supplier financial viability, supplier quality, and operationally related information.

With respect to vision, your solution provider needs to have value beyond just one-time cost reduction category sourcing efforts, otherwise you should be looking at another solution provider because the true value of any spend or supply management solution is long term viability. At the very least, your provider should understand and offer solutions for long term supplier performance management and supply risk management.

The solution should be integrated into, or support strong integration with, a spend management suite and have strong ties into other systems of record and data stores since the notion of periodic batch-based approaches to spend visibility and analytics is no longer sufficient and the future will require near real-time updates to insure your supply chain continually functions like a well-oiled machine.

All-in-all, a great couple of days on sourcing innovation and the future of sourcing.