In Part I we noted that SI understands that it’s last few posts have probably caused a lot of soul-searching and panic among practitioners and fear and loathing among vendors, who don’t have an optimization based Sourcing platform and, in the viewpoint of SI, don’t have a platform that supports true strategic sourcing, and then began to discuss the panic and fear. We then noted that the simple answer was that the average organization was probably not screwed, but the full answer would take quite a bit to preamble to explain — preamble that we’re in the midst of.
We left off noting that SRM is only one way to identify additional value, or, in some cases, reduce unexpected loss. Contact Lifecycle Management (CLM) is another way. Strategic Sourcing identifies savings. Procurement prevents unnecessary overspend. But CLM prevents unexpected loss. The total cost of a good is total landed cost plus utilization/processing cost plus COGS (cost of goods sold) plus return/warranty cost plus reclamation cost at life end. And it’s a total loss if the good is lost. In order to prevent savings leakage, an organization has to manage the lifecycle of the goods being purchased for the length of the contract, especially if returns and payment reclamations need to occur. This is where CLM comes in. It makes sure contracted terms are adhered to, the lifecycle is monitored, supplier relationships are appropriately managed, and, where appropriate, risk is monitored and managed. (For more details, see the Contract Lifecycle Management series over on Spend Matters that was co-written by the doctor and the maverick, indexed here.)
Then there is sustainability. Finding ways to reduce energy and water consumption, to switch to renewable resources, to avoid suppliers or products that are not in compliance with appropriate regulations (and that could result in the organization being hit with multi-million dollar fines), is also strategic and very valuable.
If the Sourcing platform in use by your organization supports one or more of the above strategic activities, your organization is definitely not screwed as it can use that platform to identify additional sources of strategic savings and strategic value. As will be discussed in a future joint series between the doctor and the prophet, there are many approaches to sourcing and, with the exception of first generation e-Negotiation, each brings significant, unique, advantages that are very valuable.
However, if all the organization has is a first-generation e-Negotiation platform that is nothing more than an RFX and/or e-Auction with a little bit of reporting and a primitive supplier portal, then, at some point, it may find itself screwed. While the first e-Sourcing event on any category will almost always identify (significant) savings, those savings don’t reappear the next time the event is run. The fat can only be trimmed from the margins once, and then the organization has to get strategic to find sustained savings. Fortunately, the majority of providers do not fall in this category, because this means the majority of organization with a sourcing platform can confidently say they made a good choice — and just need to acquire supplementary optimization capability for where it is needed.
The full answer is thus: as long as you are not stuck on a pure first-generation e-Negotiation platform, then you have a platform that will support continued savings identification, cost control, and/or value generation when appropriately used. If you are, then you will need to augment it as soon as possible because, as explained in the last paragraph, from a savings perspective, you need to consider the platform a one-time use on a category basis. By the time you cycle back to the first category in the queue, you will need a more advanced solution.