Is Your Procurement Platform Cost Centric Perfect for Indirect Only?

We’re all familiar with the standard 5-Step Sourcing Process:

  • Category (Spend) Analysis
  • Category (Sourcing) Strategy
  • Supplier Identification & Invitation
  • Sourcing Strategy Execution
  • Award and Contract

(which is covered in detail in the doctor‘s e-Book on The Strategic Sourcing Lifecycle: A Brief Introduction [registration required])

and we’re all familiar with the core capabilities of e-Sourcing and e-Procurement tools for supporting this lifecycle, namely:

  • Spend Analysis
  • Supplier Network
  • RFX / e-Auction
  • Optimization
  • Award & Contract

… for Sourcing and

  • Requisition & Order Management
  • Invoice & Receipt Management
  • Payment & Tax Management

… for Procurement.

And we’re very familiar with what each of these technologies has to offer for each of the strategic sourcing (execution) lifecycle phases.

But is it enough? For the majority of your indirect (finished product, MRO supply, temp labour, etc.) categories, it is more than enough. Compared to what you had a decade ago, it’s the answer to all your dreams (and, for the religious among you, prayers).

For a commodity alarm clock radio, yes. For a bill of materials for a custom designed tablet, no. First of all, you can’t just do an RFX for all of the “standard components”. Why? For starters:

  • all of the components have to be compatible — it is often the case that components from different manufacturers, even if they are the same form factor, are not 100% compatible
  • the cost is not just the components, it’s the integration — and sometimes you want sub-assemblies, and you want to bid those against components and doing the assembly in house
  • complete composition data is key — if some products use materials that are restricted or banned in one or more target markets, they are not all equal

and when you consider a typical sourcing platform

  • there is typically no advanced strategic sourcing decision optimization or constraint satisfaction capability and no way to indicate that certain products are only compatible with certain others and, thus, it is extremely difficult to create and evaluate the cost of legal award scenarios; and even if the organization has one of the half dozen solutions with this capability, there’s typically no way to capture the data that defines compatibility or incompatibility (or help a sourceror identify potential issues)
  • not only does the average sourcing platform have no support for Bill of Materials, but there is no support for production cost models that capture overhead costs (as most procurement platforms designed for indirect focus mainly on logistics costs in addition to component costs)
  • average procurement platforms track descriptions and bids, not component and material breakdowns (and have no support for compliance and sustainability issues and regulations)

In other words, your typical procurement platform is cost-centric perfect for indirect, but when it comes to direct, the platform is sorely lacking.

So what do you need to support your direct procurement? Download Sourcing Innovation’s newest white paper on The Direct Procurement Challenge (registration required), sponsored by Pool4Tool, and find out today!