Earlier this year, the Hackett Group released it’s Procurement Executive Insight on The CPO Agenda: Reduce Purchase Costs, Improve Agility, and Become a Trusted Advisor that summarized the Hackett Group’s annual key issues study that was undertaken to define the top issues that would shape the procurement executive agenda for 2016.
As a result of this study, Hackett identified two major facts:
- The Top Four Priorities are, bottom up:
- improve agility
- increase spend influence
- become a trusted advisor
- reduce and avoid purchase costs
which is bad, because costs should be well under control by now and Procurement should be seen as a trusted advisor by those that spend the most and
- Procurement’s Operating Budget is expected to grow by a mere 1.1%
which is worse because most Procurement departments are under-staffed, under-resourced (technology wise), and under-funded (even though they can often make the greatest contribution to the bottom line of any department in the organization).
It’s another year of doing more with essentially less (as 1.1% budget increase doesn’t even cover the cost of inflation), which means that you have to be more efficient, and effective, than ever. You need to push your Procurement Value Engine into overdrive.
How do you do that?
(Hint: It involves heeding the advice in Higher Adoption is Where True Value Lies, and we’ll get to that.)
There are a number of ways to do this, but probably the most critical thing to do is start at the beginning and get your Strategic Sourcing under control, especially for any non-direct category where you are not locked into a very small group (sometimes a very small singular group) of suppliers. And how do you do this? You get your optimization-backed sourcing platform adopted throughout the organization. (Don’t have an optimization-backed sourcing platform, than maybe you need to talk to one of the sourcing samurai.)
The reason Procurement is still in the “dark ages” in most organizations is because less than half (40%-) of organizations have any sort of platform. Of those, some have Sourcing, some have Procurement, some have Contract Management, some have Supplier Management (SIM/SPM/SRM/SxM), and some have another point-based solution that solves one particular pain, but leaves most of the pain of the Procurement organization unaddressed.
The most common solutions are either e-Procurement platforms, typically with some sourcing capability (namely, RFx), or e-Sourcing platforms, typically with Spend Analysis, Contract Management, and/or some procurement capability (usually order or invoice management). However, just because these solutions are in place, it doesn’t mean that they are used. In many organizations with a sourcing platform, only a small team of senior buyers working on the most strategic or highest dollar categories use the tool. This is costing the organization a lot of money, as the opportunity cost of not applying the platforms across the board (and identifying cost savings or cost avoidance across the board) is huge.
Consider our recent post on Why You Need Mass Adoption of an Optimization-Backed Sourcing Platform, a traditional organization without an optimization-backed sourcing platform will typically only source, at best, 9% of spend strategically with optimization and 18% of spend strategically without using the platform, for a total throughput of a mere 27%. For an organization that sources 50% or more of its spend every year, that’s half of its straight-to-the-bottom-line savings opportunity up in smoke!
But if the organization doesn’t use an optimization-backed sourcing platform, instead of an average of 1/4 of spend being strategically sourced in one way, the fraction decreases to 1/5 (or even 1/6). Think of the opportunity costs! Instead of losing 3% against the bottom line, the organization is now losing 5% or 6%! The reason for this is that the sourcing platform is always in the hands of the few. Why? Sometimes it’s a lack of licenses, but often it’s the complexity of the solution, which is seen as too complex by the majority of the buyers who have to push through volume, complex requirements, or special situations that are, in their view, easier to deal with outside of the platform.
That’s why you not only need adoption, but you need a platform that can, and will, be adopted by all of the buyers so that 90%+ of sourced spend goes through the platform. This will not only increase savings, which addresses the top priority of Procurement executives, but also addresses the priorities of spend influence and agility. How? A good platform allows a sourcing team to move faster, and speed up events by weeks or even months, and it allows the organization to tackle critical projects within different organizations that can increase Procurement’s influence.
So to find out how to get your Sourcing Platform adopted, download Higher Adoption is Where True Value Lies today and find out the tips and tricks that will make your sourcing a success.