From Strategic Spend to Strategic Value-Add, Part II

Today’s guest post is from Ayush Sharma, a Strategic Sourcing Consultant with Trade Extensions in the Americas. His particular speciality is the application of optimization to Retail Sourcing, Dedicated Transportation, 3PL Logistics Sourcing, and Direct and Indirect Materials Sourcing. Ayush has a Masters degree in Supply Chain Management from the University of Texas at Dallas, certifications in Lean Six Sigma and Supply Chain Management, and has served as a Technical Director for a local branch of the Institute for Supply Management (ISM).

Yesterday’s post discussed the importance of supply and demand chain integration as the key to an efficient, profitable, and fluid business. These processes, which should be integrated with the strategic plan, should utilize Strategic Sourcing and it’s ability to drive ‘savings’ year after year. And the best Strategic Sourcing processes are those that combine combinatorial bidding and optimization, which allows an analyst to run several what-if scenarios in minutes and generate reports that show exactly how the overall spend distribution changes as newer business processes are taken into account. In today’s post, we will discuss the requirements for a strong and measurable sourcing process.

A strong and measurable sourcing process normally exhibits the following characteristics:

  1. Integrated Processes
    Using a rolling window of a few years (usually two to three years), strategic sourcing projects should be strictly monitored to understand expected vs. implemented costs and ensure implemented costs are in line with the strategic plan. The suggested time window works best as it allows room to respond to market dynamics while maintaining a medium to fairly long-term focus.
  2. Creative Analyses
    Technologies like combinatorial bidding and optimization can be used creatively. Today’s tools offer extreme flexibility in terms of the types of data that need to be captured and the limitless possibilities for analysis. Businesses must look at ways of incorporating qualitative information and ongoing metrics (e.g., favouring suppliers who have been able to maintain the price for the duration of the contract) in the analysis process.
  3. Collaboration
    Supplier collaboration is key to insure the success of any Strategic Sourcing process. In this era of real-time communication, it’s vital to collaborate with suppliers on an ongoing basis while providing them dynamic feedback to improve the overall quality of the sourcing process.
  4. Economies of Scale
    Businesses must look to increase the scale of projects. Several bidding tools allow ridiculously large numbers of bids to be captured and analyzed at an extremely granular level. Increasing the size of projects not only means increased productivity and cycle time (and thereby cost) efficiencies for the organization. It also allows you to take advantage of economies of scale in the bidding process while maintaining the appropriate level of detail during analysis.
  5. Benchmarking
    Sourcing projects should be used to create financial benchmarks allowing organizations to understand industry trends and the impact of specific changes in methodology. When the market fluctuates, effective benchmarking techniques help understand the immediate and long-term effects and allow organizations to mitigate risk.

The easiest way is to just get started using the guidelines above and then steadily build and refine the process. No one solution will work for all organizations, but taking the lather-rinse-condition-repeat approach with special focus on ‘conditioning’ will ensure maximum optimality. Supplier collaboration should take center-stage, especially when the focus is on long-term profitability. Utilizing the latest technology to capture all of their requirements ensures a wholesome process and a meaningful relationship with suppliers. As the process gets more streamlined, productivity benefits (along with specific measurable savings) will mean increased throughput in the entire sourcing process without losing track of strategic goals. This is how your Supply Management organization turns the organization’s Strategic Spend into a Strategic Value-Add for the corporation as a whole.

In the posts that follow, we will illustrate this with a couple of examples, inspired by real-world events, that demonstrate the impact of including combinatorial bidding and optimization in a sourcing project that follows a process similar to the one outlined above.

Thanks, Ayush.